Approximate date of commencement of proposed
sale to the public: As soon as
practicable after the effective date of this Registration
Statement.

If the securities being registered on this Form
are to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o

If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under
the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering. o

If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. o

If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. o

If delivery of the prospectus is expected to be
made pursuant to Rule 434, please check the following
box. o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered

Proposed Maximum Aggregate Offering Price(1)

Amount of Registration Fee

Common Stock, par value $0.001 per share

$75,000,000

$9,503

(1)

Estimated solely for the purpose of computing the
amount of the registration fee pursuant to Rule 457(o)
under the Securities Act of 1933.

The Registrant
hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said
Section 8(a) may determine.

The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or
sale is not permitted.

This is our initial public offering of shares of
our common stock. We are
offering shares
of common stock. The initial offering price of common stock is
expected to be between
$ and
$ per
share.

No public market currently exists for our common
stock. We have applied to list our common stock for quotation on
the Nasdaq National Market under the symbol “LGBT.”

Investing in our common stock involves a high
degree of risk. Before buying any shares, you should read the
discussion of material risks of investing in our common stock in
“Risk Factors” beginning on page 6.

Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.

Per Share

Total

Initial public offering price

$

$

Underwriting discounts and commissions

$

$

Proceeds, before expenses, to us

$

$

The underwriters may also purchase up to an
additional shares
of common stock from us at the public offering price, less
underwriting discounts and commissions, within 30 days from
the date of this prospectus. The underwriters may exercise this
option only to cover over-allotments, if any. If the
underwriters exercise the option in full, the total underwriting
discounts and commissions will be
$ ,
and the total proceeds, before expenses, to us will be
$ .

The underwriters are offering the shares of our
common stock as set forth under “Underwriting.”
Delivery of the shares of common stock will be made on or
about ,
2004.

You should rely only on the information contained
in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus is accurate only as of the date on the front
cover of this prospectus or other data stated in this
prospectus. Our business, financial condition, results of
operations and prospects may have changed since that date.

“PlanetOut,”“PlanetOut and
Design,”“Gay.com and Design,”“Kleptomaniac,” and
“OUT & ABOUT” are registered trademarks
of PlanetOut Inc. Each trademark, trade name or service mark of
any other company appearing in this prospectus belongs to its
holder.

Terms Used in this Prospectus

In this prospectus we refer to our
“members,”“active members,”“active
member profiles” and “subscribers.” The term
“members” refers to those visitors who have
affirmatively registered on our websites by providing us with a
member name, email address and other personal data. Registration
is free. The term “active members” as of a particular
date refers to those members who have logged on at least once
during the preceding twelve month period to the website on which
they originally registered. In order to adjust for automated
registrations created by third-party software programs, or
“adbots,” we estimate the number of active members at
any given time by reducing our raw active membership data by
15%. This discount is based on our management’s estimates
of historical adbot activity on our websites. All references to
active members in this prospectus reflect this discount. The
term “active member profiles” refers to those profiles
belonging to active members. Finally, unless otherwise
indicated, the term “subscribers” refers to those
members who have joined one of our paid premium membership
services.

This summary highlights information contained
elsewhere in this prospectus. This summary is not complete and
does not contain all of the information that you should consider
before investing in our common stock. You should read the entire
prospectus carefully, including “Risk Factors” and our
financial statements and the notes to those financial statements
appearing elsewhere in this prospectus before making an
investment decision. References to “PlanetOut,”“we,”“us” and “our” refer to
PlanetOut Inc. and its subsidiaries.

PlanetOut Inc.

We are a leading global online media company
serving the lesbian, gay, bisexual and transgendered, or LGBT,
community, a market with reported buying power of approximately
$485 billion annually in the United States alone. Our
network of websites, including our flagship websites Gay.com and
PlanetOut.com, allows our members to connect with other members
of the LGBT community around the world. We generate most of our
revenue from subscription fees for premium membership services
that we offer in English, French, German, Italian, Portuguese
and Spanish to our members who reside in more than 100
countries. We also generate revenue from online advertising and
e-commerce targeted to the LGBT community.

Our membership base is large and growing. We
believe that our base of over 3.3 million active members
constitutes the most extensive network of gay and lesbian people
in the world. In the twelve month period ended March 31,2004, we registered more than 2.2 million new members, or
an average of over 6,000 new member registrations per day.
Registration is free and allows access to integrated services,
including profile creation and search, chat and instant
messaging. By paying a fee, however, members may become
subscribers with access to our premium membership services,
including advanced search, unlimited access to profiles and
photographs, enhanced chat and premium content. Since we
introduced our premium membership services in 2001, our
subscribers have grown rapidly to more than 105,000 as of
March 31, 2004, with a weighted average monthly
subscription fee of approximately $12.00 per subscriber.

Through our global reach, we believe that we are
able to provide advertisers with unparalleled access to the LGBT
community. We generate revenue from run-of-site advertising,
sponsorship of specialized content channels, advertising on our
online-community areas, member-targeted emails and research for
our advertisers. We have run advertising campaigns on our
network for numerous Fortune 500 and other companies.

We also offer our users access to specialized
shopping and travel products and services through our
transaction-based websites. Through Kleptomaniac.com, we offer
fashion, video and music products. Through OutandAbout.com, we
provide access to premium content targeted to gay and lesbian
travelers.

Our goal is to enhance our position as an
LGBT-focused media market leader by connecting, enriching and
illuminating the lives of gay and lesbian people worldwide. We
intend to achieve this through the following strategies:

•

growing traffic and membership through increased
marketing, introducing compelling new features and international
expansion;

•

increasing our retention of subscribers;

•

capitalizing on the growth of Internet
advertising and the increased acceptance of the LGBT
market; and

•

leveraging our online reach and relationships
with our members to expand into other media.

We were incorporated in Delaware in December
2000, and we began operations in April 2001 when we acquired all
of the outstanding stock of Online Partners.com, Inc. and
PlanetOut Corporation. The stockholders of Online Partners.com,
Inc. received a majority of our stock in that transaction, and
therefore for accounting purposes, we treat the operations and
financial results of Online Partners.com, Inc. as our own for
periods prior to April 2001. In April 2004, we changed our name
from PlanetOut Partners, Inc. to PlanetOut Inc. Our principal
executive offices are located at 300 California Street,
San Francisco, CA94104 and our telephone number at that
address is (415) 834-6500. Our website can be found at
www.planetoutinc.com. Information contained on, or accessed
through, our website does not constitute a part of this
prospectus.

We estimate that our net proceeds from this
offering will be approximately
$ million.
We intend to use these net proceeds for general corporate
purposes, including working capital, capital expenditures and,
potentially, for the acquisition of complementary businesses,
products or technologies.

See “Use of Proceeds.”

Risk factors

See “Risk Factors” and other
information included in this prospectus for a discussion of
factors you should carefully consider before deciding to invest
in shares of our common stock.

Proposed Nasdaq National Market symbol

LGBT

Unless we indicate otherwise, all information in
this prospectus (1) assumes no exercise of the
over-allotment option granted to the underwriters;
(2) assumes the conversion of each outstanding share of our
series C, series D and series E preferred stock
into one share of our common stock, which will occur
automatically upon completion of this offering; (3) assumes
the conversion of each outstanding share of our series B
preferred stock into 2.5 shares of our common stock, which
will occur automatically upon completion of this offering;
(4) is based upon 11,772,075 shares outstanding as of
March 31, 2004; (5) gives effect to an assumed
11-for-one reverse stock split to be completed prior to this
offering; and (6) excludes:

•

1,719,574 shares issuable upon the exercise
of options outstanding as of March 31, 2004 with a weighted
average exercise price of $1.43 per share;

•

377,818 shares issuable upon exercise of
warrants outstanding as of March 31, 2004 with a weighted
average exercise price of $13.02 per share; and

•

1,350,447 shares authorized for issuance
under our stock plans as of April 26, 2004.

The summary historical consolidated statement of
operations data for each of the three years ended
December 31, 2003 and the summary historical consolidated
balance sheet data as of December 31, 2003 have been
derived from our audited consolidated financial statements
included elsewhere in this prospectus. The summary financial
data set forth below should be read in conjunction with
“Selected Consolidated Financial Data,”“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial
statements and the notes to the financial statements included
elsewhere in this prospectus. Our historical results are not
necessarily indicative of results for any future period. The
“Pro Forma” data in the table below give effect to the
automatic conversion of all shares of our outstanding preferred
stock into 10,045,155 shares of common stock upon the
closing of this offering. The “Pro Forma as Adjusted”
column in the table below reflects the application of the net
proceeds from the sale by us
of shares
of common stock in this offering at an assumed public offering
price of
$ per
share (the midpoint of the range set forth on the cover of this
prospectus) after deducting the underwriting discount and
estimated offering expenses.

Represents a minority interest in Gay.it S.p.A.,
as further described in Note 3 to the financial statements.

(2)

Adjusted EBITDA consists of net income (loss)
before interest, taxes, depreciation and amortization,
stock-based compensation, equity in net loss of unconsolidated
affiliate and other (income) expense, net. We believe that
Adjusted EBITDA provides a useful alternative measure of cash
flow from operations. You should not consider Adjusted EBITDA as
a substitute for operating loss, as an indicator of our
operating performance or as an alternative to cash flows from
operating activities as a measure of liquidity. We may calculate
Adjusted EBITDA differently from other companies. The following
table reconciles the calculation of Adjusted EBITDA with net
loss for the year ended December 31, 2001, 2002 and 2003:

You should carefully consider the risks
described below before purchasing shares in this offering. If
any of the following risks actually occur, our business,
financial condition or results of operations could be harmed,
the trading price of our common stock could decline and you may
lose all or part of your investment.

Risks Associated with Our Business

We have a history of significant losses. If we
do not achieve or sustain profitability, our financial condition
and stock price could suffer.

We have experienced significant net losses and we
may continue to incur losses for the foreseeable future given
our anticipated increase in sales and marketing expenditures. We
incurred net losses of approximately $16.5 million,
$7.9 million and $0.8 million for the year ended
December 31, 2001, 2002 and 2003, respectively. As of
December 31, 2003, our accumulated deficit was
approximately $36.8 million. We have not yet achieved
profitability. If our revenue grows more slowly than we
anticipate, or if our operating expenses are higher than we
expect, we may not be able to achieve, sustain or increase
profitability in the near future or at all, and our financial
condition and stock price could be adversely affected.

If our efforts to attract and retain
subscribers are not successful, our revenue will be affected
adversely.

Because most of our revenue is derived from our
premium membership services, we must continue to attract and
retain subscribers. Many of our new subscribers originate from
word-of-mouth referrals from existing subscribers within the
LGBT community. If our subscribers do not perceive our service
offerings to be of high quality or sufficient breadth, if we
introduce new services that are not favorably received or if we
fail to introduce compelling new features or enhance our
existing offerings, we may not be able to attract new
subscribers or retain our current subscribers. As a result, our
revenue will be affected adversely.

While seeking to add new subscribers, we must
also minimize the loss of existing subscribers. We lose our
existing subscribers primarily as a result of cancellations and
credit card failures due to expirations or exceeded credit
limits. Subscribers cancel their subscription to our service for
many reasons, including a perception, among some subscribers,
that they do not use the service sufficiently, that the service
is a poor value and that customer service issues are not
satisfactorily resolved. We must continually add new subscribers
both to replace subscribers who cancel or whose subscriptions
are not renewed due to credit card failures and to continue to
grow our business beyond our current subscriber base. If
excessive numbers of subscribers cancel our service, we may be
required to incur significantly higher marketing expenditures
than we currently anticipate to replace these subscribers with
new subscribers, which will harm our financial condition.

Our success depends, in part, upon the growth
of Internet advertising and upon our ability to accurately
predict the cost of customized campaigns.

We compete with traditional media including
television, radio and print, in addition to high-traffic
websites, such as those operated by Yahoo!, Google, AOL and MSN,
for a share of advertisers’ total online advertising
expenditure. We face the risk that advertisers might find the
Internet to be less effective than traditional media in
promoting their products or services, and as a result they may
reduce or eliminate their expenditures on Internet advertising.
Many potential advertisers and advertising agencies have only
limited experience advertising on the Internet and historically
have not devoted a significant portion of their advertising
expenditures to Internet advertising. Additionally, filter
software programs that limit or prevent advertisements from
being displayed on or delivered to a user’s computer are
becoming increasingly available. If this type of software
becomes widely accepted, it would negatively affect Internet
advertising. Our business could be harmed if the market for
Internet advertising does not grow.

Currently, we offer advertisers a number of
alternatives to advertise their products or services on our
websites and to our members, including banner advertisements,
rich media advertisements, email campaigns, text links and
sponsorships of our channels, topic sections, directories and
other online databases and content. Frequently, advertisers
request advertising campaigns consisting of a combination of
these offerings, including some that may require custom
development. If we are unable to accurately predict the cost of
developing these custom campaigns for our advertisers, our
expenses will increase and our margins will be reduced.

If advertisers do not find the LGBT market to
be an attractive market, our business will be harmed.

We focus our services exclusively on the LGBT
community. Advertisers and advertising agencies may not consider
the LGBT community to be a broad enough or attractive enough
market for their advertising budgets, and they may prefer to
direct their online advertising expenditures to larger
high-traffic websites that focus on broader markets. If we are
unable to attract new advertisers, if our advertising campaigns
are unsuccessful with the LGBT community or if our existing
advertisers do not renew their contracts with us, our operating
results will be adversely affected.

As a result of our recent growth and limited
operating history, it is difficult to forecast our revenue,
gross profit, operating expenses, number of subscribers and
other financial and operating data. Our inability, or the
inability of the financial community at large, to accurately
forecast our operating results could cause our net losses to be
greater than expected, which could cause a decline in the
trading price of our common stock.

Our operating results have fluctuated in the past
and may fluctuate significantly in the future due to a variety
of factors, many of which are outside of our control. As a
result, we believe that period-over-period comparisons of our
operating results are not necessarily meaningful and that you
should not rely on the results of one period as an indication of
our future or long-term performance. Factors that may cause our
operating results to fluctuate include the following:

•

fluctuations in the demand for products and
services such as those we offer through our websites or our
inability to convert visitors into subscribers;

•

our ability to achieve, measure and demonstrate
to advertisers the breadth of Internet traffic using our
websites and the value of our targeted advertising to attract
and retain new and existing advertising relationships;

•

the amount and timing of operating costs,
including the effectiveness of our sales and marketing efforts,
and capital expenditures relating to expansion of our business
operations and infrastructure;

•

technical difficulties, including system downtime
or Internet disruptions;

•

our ability to introduce, in a timely manner, new
features and enhancements to our products and services that our
members, subscribers, advertisers and other customers find
compelling and to be of sufficiently high quality and breadth;

•

new or enhanced services or product offerings by
our competitors or by new market entrants, including competitors
who may offer services at lower cost;

•

our ability to expand internationally;

•

our ability to manage the integration of
operations and technology resulting from acquisitions, if any;

•

changes in government regulations and taxation
related to use of the Internet or otherwise applicable to our
business;

the amount of compensation expense that we will
have to recognize for options subject to variable accounting;

•

our ability to offer attractive products and
services through our transaction-based websites Kleptomaniac.com
and OutandAbout.com, which meet consumers’ expectations and
demands, including affordability and timely delivery;

•

political or judicial developments affecting the
LGBT community;

•

negative publicity that may result from content
available through our websites; and

•

economic conditions, particularly those specific
to the Internet, online membership-based services or e-commerce.

Any significant disruption in service on our
websites or in our computer and communications hardware and
software systems could harm our business.

Our ability to attract new visitors, members,
subscribers, advertisers and other customers to our websites is
critical to our success and largely depends upon the efficient
and uninterrupted operation of our computer and communications
hardware and software systems. Our systems and operations are
vulnerable to damage or interruption from power outages,
computer and telecommunications failures, computer viruses,
security breaches, catastrophic events and errors in usage by
our employees and customers, which could lead to interruption in
our service and operations, and loss, misuse or theft of data.
Our websites could be also targeted by direct attacks intended
to cause a disruption in service or to siphon off customers to
other Internet services. Among other risks, our chat rooms may
be vulnerable to infestation by software programs or scripts
that we refer to as adbots. An adbot is a software program that
creates a registration profile, enters a chat room and displays
third-party advertisements. Any successful attempt by hackers to
disrupt our websites services or our internal systems could harm
our business, be expensive to remedy and damage our reputation,
resulting in a loss of visitors, members, subscribers,
advertisers and other customers.

The risks of transmitting confidential
information online, including credit card information, may
discourage customers from subscribing to our services or
purchasing goods from us.

In order for the online marketplace to be
successful, we and other market participants must be able to
transmit confidential information, including credit card
information, securely over public networks. Third parties may
have the technology or know-how to breach the security of our
customer transaction data. Any breach could cause consumers to
lose confidence in the security of our websites and choose not
to subscribe to our services or purchase goods from us. We
currently do not offer alternative payment options and cannot
guarantee that our security measures will effectively prohibit
others from obtaining improper access to our information or that
of our users. If a person is able to circumvent our security
measures, he or she could destroy or steal valuable information
or disrupt our operations. Any security breach could expose us
to risks of data loss, litigation and liability and may
significantly disrupt our operations and harm our reputation,
operating results or financial condition.

If we are unable to provide satisfactory
customer service, we could lose subscribers.

Our ability to provide satisfactory customer
service depends, to a large degree, on the efficient and
uninterrupted operation of our customer service center. Any
significant disruption or slowdown in our ability to process
customer calls resulting from telephone or Internet failures,
power or service outages, natural disasters or other events
could make it difficult or impossible to provide adequate
customer service and support. Further, we may be unable to
attract and retain adequate numbers of competent customer
service representatives, which is essential in creating a
favorable interactive customer experience. If we are unable to
continually provide adequate staffing for our customer service
operations, our reputation could be harmed and we may lose
existing and potential subscribers. In addition, we cannot
assure you that email and telephone call volumes will not exceed
our present system capacities. If this occurs, we could

experience delays in responding to customer
inquiries and addressing customer concerns. Because our success
depends in large part on keeping our customers satisfied, any
failure to provide satisfactory customer service would likely
impair our reputation and have an adverse effect on our business.

If we are unable to compete effectively, our
business will be affected adversely.

Our markets are intensely competitive and subject
to rapid change. We compete with a number of large and small
companies, such as vertically integrated Internet portals and
specialty focused media that provide online and offline products
and services to the LGBT community. In our subscription
business, we compete with other online services, such as those
offered by Match.com and Yahoo! Personals, as well as a number
of other smaller online companies focused specifically on the
LGBT community. In our online advertising business, we compete
with a broad variety of content providers. We also compete with
offline LGBT media companies, including local newspapers,
national and regional magazines, satellite radio and television
shows. If we are unable to successfully compete with current and
new competitors, we may not be able to achieve adequate market
share, increase our revenue or achieve and maintain
profitability.

Some of these competitors have longer operating
histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources
than we do. Some of our competitors have adopted, and may
continue to adopt, aggressive pricing policies and devote
substantially more resources to marketing and technology
development than we do. The rapid growth of our online
subscription business since our inception may attract direct
competition from larger companies with significantly greater
financial resources and national brand recognition, such as
InterActive Corp., Microsoft, Time Warner, Viacom or Yahoo!
which may choose to increase their focus on the LGBT market.
Increased competition may result in reduced operating margins,
loss of market share and reduced revenue.

We may be the target of actions by advocacy
groups because we serve the LGBT community.

Advocacy groups may target our business, seeking
to limit access to our services because we serve the LGBT
community. In addition, negative publicity campaigns, lawsuits
and boycotts could negatively affect our brand acceptance,
result in decreased revenue, especially in the advertising
business, and cause additional financial harm by requiring that
we incur significant expenditures to defend our business and by
diverting management’s attention. Further, some investors,
investment banking entities, market makers, lenders and others
in the investment community may decide not to invest in our
securities or provide financing to us because we serve the LGBT
community, which, in turn, may hurt the value of our stock.

If we are unable to protect our domain names,
our reputation and brand could be affected adversely.

We have registered various domain names relating
to our brand, including Gay.com, PlanetOut.com, Kleptomaniac.com
and OutandAbout.com. Failure to protect our domain names could
adversely affect our reputation and brand, and make it more
difficult for users to find our websites and our service. The
acquisition and maintenance of domain names are generally
regulated by governmental agencies and their designees. The
regulation of domain names in the United States may change in
the near future. Governing bodies may establish additional
top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result,
we may be unable to acquire or maintain relevant domain names.
Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar
proprietary rights is unclear. We may be unable to prevent third
parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our trademarks
and other proprietary rights.

If we fail to adequately protect our
trademarks and other proprietary rights, or if we get involved
in intellectual property litigation, our business may be
adversely affected.

We rely on a combination of confidentiality and
license agreements with our employees, consultants and third
parties with whom we have relationships, as well as trademark,
copyright and trade

secret protection laws, to protect our
proprietary rights. If the protection of our proprietary rights
is inadequate to prevent use or appropriation by third parties,
the value of our brand and other intangible assets may be
diminished, competitors may be able to more effectively mimic
our service and methods of operations, the perception of our
business and service to subscribers and potential subscribers
may become confused in the marketplace and our ability to
attract subscribers and other customers may be adversely
affected.

The Internet content delivery market is
characterized by frequent litigation regarding patent and other
intellectual property rights. As a publisher of online content,
we face potential liability for negligence, copyright, patent or
trademark infringement or other claims based on the nature and
content of materials that we publish or distribute. For example,
we have received, and may receive in the future, notices or
offers from third parties claiming to have intellectual property
rights in technologies that we use in our businesses and
inviting us to license those rights. Litigation may be necessary
in the future to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope
of the proprietary rights of others or to defend against claims
of infringement or invalidity, and we may not prevail in any
future litigation. Adverse determinations in litigation could
result in the loss of our proprietary rights, subject us to
significant liabilities, require us to seek licenses from third
parties or prevent us from licensing our technology or selling
our products, any of which could seriously harm our business. An
adverse determination could also result in the issuance of a
cease and desist order, which may force us to discontinue
operations through our website or websites. Intellectual
property litigation, whether or not determined in our favor or
settled, could be costly, could harm our reputation and could
divert the efforts and attention of our management and technical
personnel from normal business operations.

If we fail to manage our growth, including
through acquisitions and our planned international expansion,
our business will suffer.

We have significantly expanded our operations,
and anticipate that further expansion, including the possible
acquisition of third-party assets, technologies or businesses,
will be required to address potential growth in our customer
base and market opportunities. This expansion has placed, and is
expected to continue to place, a significant strain on our
management, operational and financial resources. If we make
future acquisitions or continue to expand our marketing efforts,
we may issue shares of stock that dilute the interests of our
other stockholders, expend cash, incur debt, assume contingent
liabilities, create additional expenses or face difficulties in
integrating acquired assets or businesses into our operations,
any of which might harm our financial condition or results of
operations.

In addition, we offer services and products to
the LGBT community outside the United States, and we intend to
continue to expand our international presence, which may be more
difficult or take longer than anticipated especially due to
international challenges, such as language barriers, currency
exchange issues and the fact that Internet infrastructure in
foreign countries may be less advanced than Internet
infrastructure in the United States. Expansion into
international markets requires significant resources that we may
fail to recover by generating additional revenue.

If we are unable to successfully expand our
international operations, manage growth effectively or
successfully integrate any assets, technologies or businesses
that we may acquire, our business, financial condition and
results of operations will be affected adversely.

Existing or future government regulation in
the United States and other countries could harm our
business.

We are subject to federal, state, local and
international laws affecting companies conducting business on
the Internet, including user privacy laws, regulations
prohibiting unfair and deceptive trade practices and laws
addressing issues such as freedom of expression, pricing and
access charges, quality of

products and services, taxation, advertising,
intellectual property rights and information security. In
particular, we are currently required, or may in the future be
required, to:

•

provide notice to our customers of our policies
on sharing non-public information with third parties;

•

provide advance notice of any changes to our
privacy policies;

•

with limited exceptions, give consumers the right
to prevent sharing of their non-public personal information with
unaffiliated third parties;

•

provide notice to residents in some states if
their personal information was, or is reasonably believed to
have been, obtained by an unauthorized person such as a computer
hacker;

•

comply with the recently enacted federal
anti-spam legislation by limiting or modifying some of our
marketing and advertising efforts, such as email campaigns;

•

comply with the European Union privacy directive
and other international regulatory requirements by modifying the
ways in which we collect and share our users’ personal
information;

•

qualify to do business in various states and
countries, in addition to jurisdictions where we are currently
qualified, because our websites are accessible over the Internet
in multiple states and countries;

•

limit our domestic or international expansion
because some jurisdictions may limit or prevent access to our
services as a result of the availability of some content
intended for mature viewing on some of our websites;

•

limit or prevent access, from some jurisdictions,
to some or all of the member-generated content available through
our websites; and

•

comply with laws of some states regulating
contractual terms between a dating referral service and its
clients, which while passed before the advent of the Internet,
may apply to our premium membership services.

The restrictions imposed by, and costs of
complying with, current and possible future laws and regulations
related to our business could harm our business, operating
results and financial condition.

If one or more states or countries
successfully assert that we should collect sales or other taxes
on the use of the Internet or the online sales of goods and
services, our business could be harmed.

In the United States, tax authorities in a number
of states, as well as a Congressional advisory commission, are
currently reviewing the appropriate tax treatment of companies
engaged in online commerce, and new state tax regulations may
subject us to additional state sales and income taxes, which
could have an adverse effect on our results of operations.

In 2003, the European Union implemented new rules
regarding the collection and payment of value added tax, or VAT.
These rules require VAT to be charged on products and services
delivered over electronic networks, including software and
computer services, as well as information and cultural,
artistic, sporting, scientific, educational, entertainment and
similar services. These services are now being taxed in the
country where the purchaser resides rather than where the
supplier is located. Historically, suppliers of digital products
and services that existed outside the European Union were not
required to collect or remit VAT on digital orders made to
purchasers in the European Union. With the implementation of
these rules, we are required to collect and remit VAT on digital
orders received from purchasers in the European Union,
effectively reducing our revenue by the VAT amount because we
currently do not pass this cost on to our customers.

We also do not currently collect sales, use or
other similar taxes for sales of our subscription services or
for physical shipments of goods into states other than
California. In the future, one or more

local, state or foreign jurisdictions may seek to
impose sales, use or other tax collection obligations on us. If
these obligations are successfully imposed upon us by a state or
other jurisdiction, we may suffer decreased sales into that
state or jurisdiction as the effective cost of purchasing goods
or services from us will increase for those residing in these
states or jurisdictions.

If we do not continue to attract and retain
qualified personnel, we may not be able to expand our
business.

Our business and financial results depend on the
continued service of our key personnel. The loss of the services
of our executive officers or other key personnel could harm our
business and financial results. Our success also depends on our
ability to hire, train, retain and manage highly skilled
employees. We cannot assure you that we will be able to attract
and retain a sufficient number of qualified employees or that we
will successfully train and manage the employees we hire. The
loss of our key personnel could disrupt our operations and have
an adverse effect on our ability to grow and expand our business.

We may need additional capital and may not be
able to raise additional funds on favorable terms or at all,
which could increase our costs, limit our ability to grow and
dilute the ownership interests of existing
stockholders.

We anticipate that we may need to raise
additional capital in the future to facilitate long-term
expansion, to respond to competitive pressures or to respond to
unanticipated financial requirements. We cannot be certain that
we will be able to obtain additional financing on commercially
reasonable terms or at all. If we raise additional funds through
the issuance of equity, equity-related or debt securities, these
securities may have rights, preferences or privileges senior to
those of the rights of our common stock, and our stockholders
will experience dilution of their ownership interests. A failure
to obtain additional financing or an inability to obtain
financing on acceptable terms could require us to incur
indebtedness that has high rates of interest or substantial
restrictive covenants, issue equity securities that will dilute
the ownership interests of existing stockholders, or scale back,
or fail to address opportunities for expansion or enhancement
of, our operations. We cannot assure you that we will not
require additional capital in the near future.

Our executive offices and the data center are
located in the San Francisco Bay area. In the event of an
earthquake, other natural or man-made disaster or power loss,
our operations could be affected adversely.

Our executive offices and our data center are
located in the San Francisco Bay area. Our business and
operations could be materially adversely affected in the event
of electrical blackouts, fires, floods, earthquakes, power
losses, telecommunications failures, break-ins or similar
events. Because the San Francisco Bay area is located in an
earthquake-sensitive area, we are particularly susceptible to
the risk of damage to, or total destruction of, our systems and
infrastructure. We are not insured against any losses or
expenses that arise from a disruption to our business due to
earthquakes. Further, the State of California has experienced
deficiencies in its power supply over the last few years,
resulting in occasional rolling blackouts. If rolling blackouts
or other disruptions in power occur, our business and operations
could be disrupted, and our business could be affected adversely.

Risks Related to the Offering

Our officers and directors and their
affiliates will exercise significant control over us.

After the completion of this offering, our
executive officers and directors, their immediate family members
and affiliated venture capital funds will beneficially own, in
the aggregate,
approximately %
of our common stock. In addition, our executive officers and
their immediate family members will beneficially own, in the
aggregate,
approximately %
of our common stock. These stockholders may have individual
interests that are different from yours and will be able to
exercise significant control over

all matters requiring stockholder approval,
including the election of directors and approval of significant
corporate transactions, which could delay or prevent someone
from acquiring or merging with us.

Provisions in our charter documents and under
Delaware law could discourage a takeover that stockholders may
consider favorable.

Following this offering, our charter documents
may discourage, delay or prevent a merger or acquisition that a
stockholder may consider favorable because they will:

•

authorize our board of directors, without
stockholder approval, to issue up to 5,000,000 shares of
undesignated preferred stock;

•

provide for a classified board of directors;

•

prohibit our stockholders from acting by written
consent;

•

establish advance notice requirements for
proposing matters to be approved by stockholders at stockholder
meetings; and

•

prohibit stockholders from calling a special
meeting of stockholders.

As a Delaware corporation, we are also subject to
Delaware law anti-takeover provisions. Under Delaware law, a
corporation may not engage in a business combination with any
holder of 15% or more of its capital stock unless the holder has
held the stock for three years or, among other things, the board
of directors has approved the transaction. Our board of
directors could rely on Delaware law to prevent or delay an
acquisition of us. For a description of our capital stock, see
“Description of Capital Stock.”

We will have broad discretion over the use of
the proceeds to us from this offering.

We will have broad discretion to use the net
proceeds to us from this offering, and you will be relying on
the judgment of our board of directors and management regarding
the application of these proceeds. Although we expect to use the
net proceeds from this offering for general corporate purposes,
including working capital, and for potential strategic
investments or acquisitions, we have not allocated these net
proceeds for specific purposes. Accordingly, it is possible that
our management may allocate the proceeds in ways that do not
improve our operating results.

Our stock price may be volatile and you may
lose all or a part of your investment.

Prior to this offering, there has been no public
market for our common stock. The market price of our common
stock may be subject to significant fluctuations after our
initial public offering. It is possible that in some future
periods our results of operations may be below the expectations
of securities analysts and investors. If this occurs, our stock
price will decline.

In addition, the stock markets have experienced
significant price and trading volume fluctuations, and the
market prices of Internet-related and e-commerce companies in
particular have been extremely volatile and have recently
experienced sharp share price and trading volume changes. These
broad market fluctuations may adversely affect the trading price
of our common stock. In the past, following periods of
volatility in the market price of a public company’s
securities, securities class action litigation has often been
instituted against that company. This type of litigation could
result in substantial costs to us and a likely diversion of our
management’s attention which could adversely affect our
business. We cannot assure that you will receive a positive
return on your investment when you sell your shares or that you
will not lose the entire amount of your investment.

Future sales of our common stock, including
the shares purchased in this offering, may depress our stock
price.

Sales of substantial amounts of our common stock
in the public market following this offering by our existing
stockholders or upon the exercise of outstanding options or
warrants to purchase shares of our

common stock may adversely affect the market
price of our common stock. These sales could create public
perception of difficulties or problems with our business. As a
result, these sales might make it more difficult for us to sell
securities in the future at a time and price that we deem
necessary or appropriate.

Upon completion of this offering, we will have
outstanding shares
of common stock, assuming no exercise of the underwriters’
over-allotment option and no exercise of outstanding options and
warrants
after ,
2004, of which:

•

all of
the shares
we are selling in this offering may be resold in the public
market immediately after this offering, other than shares
purchased by our affiliates or stockholders subject to the
lock-up agreements; and

•

shares
are subject to the lock-up agreements and will become available
for resale in the public market beginning 181 days after
the date of this prospectus.

We have reserved up to 5% of the shares to be
sold in this offering for sale to certain of our current
stockholders, business associates, employees, directors and
other related persons. If any of our current security holders
that have signed a lock-up agreement purchase these reserved
shares, the shares will be restricted from sale under the
lock-up agreements. If any of these shares are purchased by
persons who are not current security holders, these shares will
not be subject to lock-up agreements.

Beginning 181 days after the date of this
prospectus, additional
shares underlying options will become available for sale in the
public market. As restrictions on resale end, our stock price
could drop significantly if the holders of these restricted
shares sell them or are perceived by the market as intending to
sell them. For further discussion of future sales of our common
stock, see “Shares Eligible for Future Sales.”

We do not intend to pay dividends on our
common stock.

We have never declared or paid any cash dividends
on our common stock and do not intend to pay dividends on our
common stock for the foreseeable future. We intend to invest our
future earnings, if any, to fund our growth. Therefore, you
likely will not receive any dividends from us on our common
stock for the foreseeable future.

SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS

This prospectus contains forward-looking
statements that involve many risks and uncertainties. These
statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terminology including “would,”“could,”“may,”“will,”“should,”“expect,”“intend,”“plan,”“anticipate,”“believe,”“estimate,”“predict,”“potential”
or “continue,” the negative of these terms or other
comparable terminology. These statements are only predictions.
Forward-looking statements include statements about our business
strategy, future operating performance and prospects. You should
not place undue reliance on these forward-looking statements.
Actual events or results may differ materially. In evaluating
these statements, you should specifically consider various
factors, including the risks described above and in other parts
of this prospectus. These factors may cause our actual results
to differ materially from any forward-looking statement. We
cannot guarantee future results, levels of activity, performance
or achievements. We undertake no obligation to update or revise
any of the forward-looking statements after the date of this
prospectus to conform these statements to actual results.

At an assumed public offering price of
$ per
share, we will receive
$ million
from our sale
of shares
of common stock in this offering, after deducting estimated
offering expenses and the underwriting discount. If the
underwriters exercise their over-allotment option in full, we
will receive an additional
$ million
in net proceeds.

The principal purposes of this offering are to
create a public market for our common stock, to facilitate our
access to the public capital markets and to provide us with
flexibility in the future, including the flexibility to acquire
additional businesses, products and technologies either with the
net proceeds of this offering or through the issuance of
additional shares of our common stock, which could be publicly
traded, although we do not currently have any agreements or
commitments with respect to any acquisition or investment.

We intend to use the net proceeds from this
offering for working capital, capital expenditures and general
corporate purposes. We have not allocated a specific portion of
our net proceeds from this offering to any particular purpose.
The amount and timing of our actual expenditures will depend on
numerous factors, such as the progress of our development and
marketing efforts and the amount of cash used by our other
operations. Thus, we will retain broad discretion over the use
of the net proceeds from this offering. Pending these uses, we
will invest the net proceeds of this offering in short-term,
interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends
on our capital stock, and we currently do not intend to pay cash
dividends on our common stock. We currently expect to retain any
future earnings to fund the operation and expansion of our
business. Any future decision to pay dividends will be made by
our board of directors and will depend on our results of
operations, financial condition, contractual and legal
restrictions, if any, and other factors the board deems relevant.

The following table sets forth our cash and cash
equivalents and capitalization as of December 31, 2003 on:

•

an actual basis;

•

a pro forma basis, giving effect to the
conversion of all shares of our outstanding preferred stock into
10,045,155 shares of common stock automatically upon
completion of this offering; and

•

a pro forma as adjusted basis to reflect our sale
of shares
of common stock in this offering at the initial public offering
price of
$ per
share, the midpoint of the range set forth on the cover of this
prospectus, after deducting the underwriting discount and
estimated offering expenses.

You should read the following table in
conjunction with the section captioned “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” of this prospectus and with our financial
statements and related notes included elsewhere in this
prospectus.

If you invest in our common stock, your interest
will be diluted to the extent of the difference between the
public offering price per share of our common stock and the pro
forma net tangible book value per share of our common stock
after this offering.

Our pro forma net tangible book value as of
December 31, 2003 was approximately
$ ,
or
$ per
share of common stock. Pro forma net tangible book value per
share represents the amount of our total tangible assets less
our total liabilities, divided by 11,772,852 shares of
common stock outstanding on a pro forma basis as of
December 31, 2003. These pro forma numbers reflect the
conversion of all shares of our outstanding convertible
preferred stock into common stock.

Dilution in net pro forma tangible book value per
share to new investors represents the difference between the
amount per share paid by purchasers of shares of our common
stock in this offering and net tangible book value per share of
our common stock immediately after completion of this offering.
After giving effect to our sale
of shares
of common stock in this offering at the initial public offering
price of
$ per
share and after deducting the underwriting discount and
estimated offering expenses payable by us, our pro forma net
tangible book value as of December 31, 2003 would have been
$ ,
or
$ per
share of common stock. This amount represents an immediate
increase in pro forma net tangible book value to our existing
stockholders of
$ per
share and an immediate dilution in pro forma net tangible book
value to new investors of
$ per
share. The following table illustrates this per share dilution:

Dilution in pro forma net tangible book value per
share to new investors

$

The following table summarizes, on a pro forma
basis as of December 31, 2003, the differences between the
number of shares of common stock purchased from us, the
aggregate cash consideration paid to us, and the average price
per share paid by our existing stockholders and by new investors
purchasing shares of common stock in this offering. These pro
forma numbers reflect the conversion of all of our outstanding
convertible preferred stock into common stock. The calculation
below is based on the initial public offering price of
$ per
share, before deducting the underwriting discount and estimated
offering expenses payable by us:

Shares Purchased

Total Consideration

Average

Price Per

Number

Percent

Amount

Percent

Share

Existing stockholders

%

$

%

$

New public investors

Total

100.0

%

$

100.0

%

This discussion and table assume no exercise of
any stock options or warrants outstanding as of
December 31, 2003. As of December 31, 2003, there were
options outstanding to purchase a total of 1,696,889 shares
of common stock with a weighted average exercise price of
$1.32 per share and warrants outstanding to purchase a
total of 420,213 shares of common stock with a weighted
average exercise of $14.10 per share. To the extent that
any of these options or warrants are exercised, there will be
further dilution to new investors. If the over-allotment option
granted to the underwriters is exercised in full, the number of
shares held by new investors will increase
to shares,
or %
of the total number of shares of common stock outstanding after
this offering.

The following selected historical consolidated
financial data should be read in conjunction with
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our consolidated
financial statements and the notes to those statements included
elsewhere in this prospectus.

The selected historical consolidated statements
of operations data for each of the years in the three-year
period ended December 31, 2003, and the historical
consolidated balance sheet data as of December 31, 2002 and
2003 have been derived from our audited consolidated financial
statements included elsewhere in this prospectus. The selected
historical consolidated statements of operations data for the
year ended December 31, 1999 and 2000 and the historical
consolidated balance sheet data as of December 31, 1999,
2000 and 2001 have been derived from our audited consolidated
financial statements but are not included in this prospectus.

The following discussion should be read in
conjunction with the financial statements and related notes
which appear elsewhere in this prospectus. This discussion
contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a
result of various factors, including those discussed below and
elsewhere in this prospectus, particularly under the heading
“Risk Factors.”

Overview

We are a leading global online media company
serving the LGBT community, a market with reported buying power
of approximately $485 billion annually in the United States
alone. Our network of websites, including our flagship websites
Gay.com and PlanetOut.com, allows our members to connect with
other members of the LGBT community around the world.

We have incurred significant losses since our
inception. As of December 31, 2003, we had an accumulated
deficit of $36.8 million. We expect to incur significant
marketing, engineering and technology, general and
administrative and stock-based compensation expenses for the
foreseeable future. As a result, we will need to continue to
grow revenue and increase our operating margins to achieve
profitability.

We derive our revenue from three main sources:
subscription, advertising and transaction services. Revenue from
advertising services accounted for the majority of our revenue
in 2001. Our subscription revenue began to grow more rapidly
after the 2001 launch of our paid premium membership services.
While revenue from both advertising and transaction services
grew each year from 2001 to 2003, revenue from subscription
services grew at a faster rate and overtook advertising as our
largest revenue source by 2002.

Subscription
Services. We began charging for
subscriptions to our premium membership services on
PlanetOut.com in February 2001 and Gay.com in June 2001. On both
of these websites, the initial set of services for which we
offered paid premium memberships was based primarily on viewing,
searching and replying to profiles. We have steadily expanded
the set of services included in our paid premium memberships to
include advanced profile search, chat, instant messaging and
email. The Gay.com paid premium memberships also include premium
chat features, video chat and premium content. We currently
offer Gay.com membership services in six languages to members
who reside in more than 100 countries through Gay.com and
localized versions of Gay.com.

Historically, we have priced our premium
membership services as follows:

Free 7-day trial June 2002 to July 2002$4.95 3-day trial July 2002 to January 2003

January 2003 to April 2003

$

89.95

$

39.95

$

16.95

$7.95 3-day trial

April 2003 to present

$

79.95

$

39.95

$

16.95

$6.95 3-day trial April 2003 to April 2004 $9.95 7-day trial April 2004 to present

As of December 31, 2003, we had
approximately 3.3 million active members, 1.8 million
active member profiles and 97,700 subscribers for our
premium membership services, and approximately 90% of our
subscribers identified themselves as residing in the United
States. Excluding trial memberships, as of December 31,2003, approximately 47% of our subscribers paid monthly, 17%
paid quarterly and 36% paid annually.

In addition to revenue from premium membership
services, we derive revenue from subscriptions for print and
online versions of our Out&About newsletter. We publish the
newsletter ten times a year and currently anticipate that
December 2004 will be the date of the final issue. Revenue from
our Out&About newsletter subscriptions was less than 2% of
our total revenue in 2003.

For both premium membership and Out&About
subscriptions, we are paid up-front. We recognize subscription
revenue ratably over the subscription period. As of
December 31, 2003, deferred revenue related to premium
membership and Out&About subscriptions totaled approximately
$2.2 million and $126,000 respectively. Our subscription
revenue is not subject to sales or use tax in the United States
but is subject to VAT in the European Union. We do not require
our subscribers to reimburse us for the VAT and we offset this
liability against revenue.

Advertising
Services. We derive advertising
revenue principally from advertising contracts in which we
typically undertake to deliver a minimum number of impressions
to users over a specified time period for a fixed fee.
Advertising rates, measured on a number of bases, including on a
cost per thousand impressions, or CPM, basis, depend on whether
the impressions are for general rotation throughout our network
or for targeted audiences through our newsletter or on our
websites.

We recognize advertising revenue ratably in the
period in which the advertisement is displayed, provided that we
have no significant obligation remaining and the collection of
the resulting receivable is reasonably assured, at the lesser of
the ratio of impressions delivered over the total number of
contracted impressions or the straight-line basis over the term
of the contract. To the extent that we do not provide the
contracted number of impressions during a specific time period,
we defer recognition of the corresponding revenue until the
thresholds are achieved.

Through 2001, advertising revenue was our
principal source of revenue. While it has declined as a
percentage of total revenue, advertising sales have grown in
absolute dollars and remain an important part of our business.
Throughout 2002 and 2003, our primary goals for advertising
services included attracting additional advertisers,
diversifying our client base and increasing average account
size. We expect to continue to pursue Fortune 500 companies
and other clients and to provide increasingly customized and
targeted advertising campaigns.

In addition to revenue from advertisers who place
general online advertisements on our websites, we derive
advertising revenue from the sale of online classified listings,
primarily for travel-related businesses, as well as print
advertising, as part of or accompanying our Out&About
newsletter. We expect to expand the scope of our online
classifieds listings to include more non-travel-related
businesses.

Online advertising accounted for more than 90% of
our advertising revenue in 2001, 2002 and 2003. In 2003, we
derived more than 85% of our total advertising services revenue
from our flagship websites, which primarily serve advertisers
based in the United States.

Transaction
Services. Our principal source of
transaction services revenue is from sales through
Kleptomaniac.com, our e-commerce website and, to a lesser
extent, through our travel website, OutandAbout.com. Through
Kleptomaniac.com, we offer hundreds of products, including DVDs,
music CDs and fashion items, some of which we own and some of
which are owned by third-parties. Revenue from Kleptomaniac.com
accounted for approximately 70% of our transaction services
revenue and approximately 6% of our overall revenue in 2003. For
those items that we own, we recognize revenue when the product
is shipped, net of estimated returns. We recognize commissions
for facilitating the sale of third-party products and services
when earned, based on reports provided by the vendors or upon
cash receipt if no reports are provided.

Critical Accounting Policies

Our discussion and analysis of our financial
condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the
reported amount of assets, liabilities, revenue and expenses and
related disclosure of contingent assets and liabilities.

We base our estimates on historical experience
and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form
the basis on which we make judgments about the carrying values
of assets and liabilities that are not readily apparent from
other sources. Because this can vary in each situation, actual
results may differ from the estimates under different
assumptions and conditions.

We believe the following critical accounting
policies require more significant judgments and estimates in the
preparation of our consolidated financial statements:

Revenue recognition.
Subscription and transaction services are generally paid for
upfront by credit card, subject, in some cases, to cancellations
by subscribers or charge backs from transaction processors. We
also provide limited return rights in connection with our
transaction services. We base the recognition of premium
subscription and transaction services revenue on our assessment
of the estimated rates of cancellations, charge backs and
returns which historically have been insignificant. We base the
recognition of advertising services revenue partly on our
assessment of the probability of collection of the resulting
accounts receivable balance. As a result, the timing and amount
of revenue recognition may vary if we use different assessments
of the probability of collection of accounts receivable and the
rates of cancellations, charge backs and returns.

Valuation
Allowances. We maintain allowances for
doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances might be required. Our allowance for
doubtful accounts as of December 31, 2003 was $43,000.

We have recorded a full valuation allowance of
$15.5 million as of December 31, 2003 against our
deferred tax assets due to uncertainties related to our ability
to realize the benefit of our deferred tax assets primarily from
our net operating losses. In the future, if we generate
sufficient taxable income and we determine that we would be able
to realize our deferred tax assets, an adjustment to the
valuation allowance would impact the results of operations in
that period.

Goodwill and Other Long-lived
Assets. Our long-lived assets include
goodwill, intangibles, property and equipment. We are required
to test goodwill for impairment on an annual basis and between
annual tests in certain circumstances. Application of the
goodwill impairment test requires judgment in determining the
fair value of the enterprise. We complete our annual test as of
December 1 and any

impairment losses recorded in the future could
have a material adverse impact on our financial condition and
results of operations.

We are required to record an impairment charge on
intangibles or long-lived assets to be held and used when we
determine that the carrying value of these assets may not be
recoverable. Based on the existence of one or more indicators of
impairment, we measure any impairment based on a projected
discounted cash flow method using a discount rate that we
determine to be commensurate with the risk inherent in our
business model. Our estimates of cash flow require significant
judgment based on our historical results and anticipated results
and are subject to many factors.

Capitalized Website Development
Costs. We expense the cost of
enhancing and developing features for our websites in cost of
revenue. However, if we believe that the capitalization criteria
for these activities have been met, we capitalize the costs and
amortize these costs on a straight-line basis over the estimated
useful life, generally, three years. For 2001, 2002 and 2003 we
capitalized $231,000, $333,000 and $855,000, respectively. We
exercise judgment in determining when to begin capitalizing
costs and the period over which we amortize the capitalized
costs. If different judgments were made, it would have an impact
on our results of operation.

Results of Operations

The following table sets forth the percentage of
total revenue represented by items in our consolidated
statements of operations for the periods presented:

We research and test potential improvements to
our hardware and software systems in an effort to improve our
productivity and enhance our members’ experience. We expect
to continue to invest in technology and improvements in our
websites. We believe costs associated with certain projects have
ongoing benefit. The capitalized development costs related to
these projects are amortized on a straight-line basis over the
estimated three year useful life of the software. The
amortization of capitalized software is included in depreciation
and amortization.

payroll and related benefits for employees
involved in sales, client service, customer service, corporate
marketing and other support functions;

•

product and service marketing and promotions; and

•

general corporate marketing and promotions.

General and
Administrative. General and
administrative expense consists primarily of payroll and related
benefits for executive, finance and administrative personnel,
professional fees, insurance and other general corporate
expenses.

Stock-based Compensation and Related
Charges. Each of our cost of revenue,
sales and marketing and general and administrative expense
categories include stock-based compensation charges for equity
instruments issued to employees. These charges represent the
intrinsic value, if any, between the respective exercise price
of stock options or stock grants and the deemed fair market
value of the underlying stock on the date of grant or reporting
date if the option is subject to variable plan accounting.

At December 31, 2003, we had options to
acquire 62,688 shares of our capital stock subject to
variable plan accounting which requires us to measure the
intrinsic value at each reporting date until such options
expire, or are exercised or forfeited. We amortize deferred
stock-based compensation over the vesting periods of the
individual options, using the multiple option method. We
recognized employee stock-based compensation expense of
$145,000, $593,000 and $1,565,000 in 2001, 2002 and 2003,
respectively.

At December 31, 2003, we had unearned
stock-based compensation of $259,000, of which $255,000 will be
amortized in 2004 and the remaining $4,000 in 2005. In addition,
we may recognize stock-based compensation expense in the future
for the options subject to variable plan accounting.

Total revenue increased from $14.0 million
in 2002 to $19.1 million in 2003.

Subscription
Services. Our subscription services
revenue increased approximately 58%, from $8.0 million in
2002 to $12.7 million in 2003. Factors that affected our
subscription revenue for 2003 included:

•

the increased breadth and attractiveness of our
product offerings;

•

investments in expanded customer support;

•

an increase in subscription fees for our Gay.com
premium membership services; and

•

increased investment in marketing and promotional
activities, particularly beginning in the second quarter of 2003.

Revenue from our premium membership services made
up approximately 98% of subscription revenue in 2003.

Advertising
Services. Our advertising services
revenue increased approximately 9%, from $4.2 million in
2002 to $4.6 million in 2003. The majority of this increase
came from increases in online advertising revenue on our
flagship websites, Gay.com and PlanetOut.com. Online advertising
from these websites accounted for approximately 80% of total
revenue in this category in 2003. Revenue from print, classified
and other advertising services made up the remainder of this
amount. Factors that affected our advertising revenue for 2003
included:

•

the improvement in the advertising market
generally and in the online advertising market specifically;

•

the increasing interest of advertisers in
targeting the LGBT community;

•

lower than expected advertising revenue due to
the war in Iraq and its effect on business confidence;

•

our decision to suspend advertising on our French
language website, fr.gay.com, in mid-2003, versus a full year of
French website advertising in 2002; and

•

periodic advertising inventory constraints during
the second half of the year on our website serving the United
Kingdom, uk.gay.com.

Transaction
Services. Our transaction services
revenue remained relatively flat at approximately
$1.7 million. Revenue from sales on Kleptomaniac.com were
impacted by the creation of an on-site fulfillment center, which
enabled us to directly manage fulfillment of specific items, and
were offset by a shift of internal promotional space on our
websites away from Kleptomaniac.com toward other services such
as our premium membership services.

Operating Costs
and Expenses

Cost of Revenue. Our
cost of revenue increased approximately 6%, from
$6.3 million in 2002 to $6.7 million in 2003. This
increase was primarily the result of an increase in
labor-related expenses, in stock-based compensation charges of
$247,000 and in expenses related to co-location and hardware and
software maintenance of $76,000. This increase was partially
offset by a reduction in occupancy costs of $381,000 and a
change in capitalized development expenses from $333,000 in 2002
to $855,000 in 2003.

Sales and Marketing.
Sales and marketing expenses increased approximately 14%, from
$5.7 million in 2002 to $6.6 million in 2003. This
increase was attributable primarily to expanded investment in
promotional activities mainly for subscription services in the
amount of $1.1 million and an increase in stock-based
compensation charges of $302,000. This increase was partially
offset by a reduction in occupancy costs of $463,000.

General and
Administrative. Our general and
administrative expenses decreased by approximately 40%, from
$7.1 million in 2002 to $4.2 million in 2003. This
decrease was primarily attributable to a one-time charge for
lease settlement of our headquarters of $2.8 million in
2002 and a reduction in occupancy costs of $159,000, which was
partially offset by an increase in stock-based compensation
expense of $307,000 and an increase in transaction related
professional fees.

Depreciation and
Amortization. Depreciation and
amortization expenses decreased by approximately 23%, from
$2.6 million in 2002 to $2.0 million in 2003. This
decrease was the result of the accelerated depreciation on our
leasehold improvements due to the relocation of our corporate
headquarters in 2002.

Total revenue increased from $7.2 million in
2001 to $14.0 million in 2002.

Subscription
Services. Our subscription services
revenue increased approximately 227%, from $2.5 million in
2001 to $8.0 million in 2002. Factors that affected our
subscription revenue for 2002 included:

•

the first full-year impact of premium membership
subscriptions following the introduction of these offerings in
2001;

•

the integration of our profile and search
services with our chat and other community offerings; and

•

an increase in the subscription fees on both
Gay.com and PlanetOut.com.

Revenue from our premium membership services
accounted for approximately 97% of subscription revenue in 2002.

Advertising
Services. Our advertising services
revenue increased approximately 17%, from $3.6 million in
2001 to $4.2 million in 2002. The majority of this increase
came from increases in online advertising revenue through our
flagship websites Gay.com and PlanetOut.com. Online advertising
from these websites accounted for approximately 73% of total
revenue in this category in 2002. Online advertising for our
localized Gay.com websites and other advertising revenue
accounted for the remainder.

Transaction
Services. Our transaction services
revenue increased approximately 48%, from $1.1 million in
2001 to $1.7 million in 2002. This increase was due
primarily to growth in revenue from sales through
Kleptomaniac.com, resulting largely from the first full year
impact of promotion of Kleptomaniac.com through our flagship
websites. Revenue from Kleptomaniac.com accounted for
approximately 67% of our total transaction revenue in 2002.

Operating Costs and Expenses

Cost of Revenue. Our
cost of revenue decreased approximately 18%, from
$7.7 million in 2001 to $6.3 million in 2002. This
decrease was the result of a number of factors including
reductions in stock-based compensation of approximately
$406,000, and in other labor related expenses as a result of
operational restructuring during 2002. Capitalized engineering
and technology related expenses increased from $231,000 in 2001
to $333,000 in 2002.

Sales and Marketing.
Sales and marketing expenses decreased approximately 8%, from
$6.2 million in 2001 to $5.7 million in 2002. This
decrease was primarily attributable to reductions in promotional
expenses of $438,000 associated with obligations to third
parties which are no longer in effect, partially offset by an
increase in stock-based compensation of $51,000.

General and
Administrative. Our general and
administrative expenses increased approximately 107%, from
$3.4 million in 2001 to $7.1 million in 2002. This
increase was primarily attributable to increases in stock-based
compensation of $337,000, a one-time charge for lease settlement
of $2.8 million and an increase associated with the
relocation of our corporate headquarters.

Depreciation and
Amortization. Depreciation and
amortization expenses decreased by approximately 52%, from
$5.5 million in 2001 to $2.6 million in 2002. This
decrease was primarily attributable to the cessation of goodwill
amortization in connection with the adoption of Statement of
Financial Accounting Standards No. 142, “Goodwill and
Other Intangible Assets.”

We have historically financed our operations
primarily through private sales of equity and capitalized
leases. During 2003, we had a positive cash flow from operating
activities of $2.1 million. As of December 31, 2003,
we had cash and cash equivalents of approximately
$2.3 million.

Net cash used in operating activities was
$10.1 million in 2001 and $157,000 in 2002. Net cash
provided by operating activities was $2.0 million in 2003.
Cash used in operating activities in 2001 was primarily
attributable to a net loss of $16.5 million, partially
offset by an adjustment for depreciation and amortization of
$5.5 million. Cash used in operating activities in 2002 was
primarily attributable to a net loss of $7.9 million,
partially offset by increases in stock-based compensation,
deferred revenue and a lease settlement payable. Cash provided
by operating activities in 2003 was primarily attributable to a
net loss of $752,000 adjusted for non-cash items including
depreciation and amortization and stock-based compensation.
These adjustments were partially offset by reductions in accrued
liabilities associated with payments related to the termination
of our office lease.

Net cash used in investing activities was
$1.9 million, $1.3 million and $1.3 million in
2001, 2002 and 2003, respectively. Net cash used in investing
activities in 2001 was primarily attributable to
$1.1 million in cash paid for acquired businesses related
to the acquisition of PlanetOut Corporation and
$1.4 million related to the purchases of property and
equipment. Net cash used in investing activities in 2002 was
primarily attributable to $1.2 million in purchases of
property and equipment. Net cash used in investing activities in
2003 was primarily attributable to $1.3 million in
purchases of property and equipment.

Net cash provided by financing activities was
approximately $10.4 million and $2.8 million in 2001
and 2002, respectively. Net cash provided by financing
activities in 2001 was primarily attributable to proceeds from
the sale of our series D preferred stock and in 2002 was
primarily attributable to proceeds from the sale of our
series E preferred stock. Net cash used by financing
activities in 2003 was $513,000 and was primarily attributable
to payments for capital lease obligations.

We believe that our available cash and cash flows
from operations will be sufficient to finance our operations and
planned growth for at least the next twelve months. Our future
capital requirements will depend on many factors, including the
expansion of our subscriber base and our sales and marketing
activities and continued market acceptance of our services. We
could be required, or could elect, to seek additional funding
through a public or private equity or debt financing in the
future, and this financing may not be available on terms
acceptable to us, or at all.

The following table summarizes our contractual
obligations as of December 31, 2003 and the effect that
these obligations are expected to have on our liquidity and cash
flows in future periods:

Payments Due by Period

Less than

1-3

4-5

After

Total

1 Year

Years

Years

5 Years

(In thousands)

Contractual Obligations:

Capital lease obligations

$

1,674

$

1,028

$

601

$

45

$

—

Operating leases, including lease settlement
payable

2,061

2,031

30

—

—

Purchase obligations

746

373

373

—

—

Redeemable preferred stock*

20,339

—

20,339

—

Total contractual obligations:

$

24,820

$

3,432

$

21,343

$

45

$

—

*

Our series D and E preferred stock have
redemption rights that will be eliminated upon conversion of our
preferred stock into common stock upon completion of this
offering.

In April 2004 we granted options exercisable
for an aggregate of 758,115 shares of common stock to our
executive officers, directors, employees and consultants at an
exercise price of $9.02 per share.

Seasonality and Inflation

We anticipate that our business may be affected
by the seasonality of certain revenue lines. For example, print
and online advertising buys are usually higher approaching
year-end and lower at the beginning of a new year than at other
points during the year, and sales on Kleptomaniac.com are
affected by the holiday season and by the timing of the release
of compilations of new seasons of popular television series.

Inflation has not had a significant effect on our
revenue or expenses historically, and we do not expect it to be
a significant factor in the short-term. However, inflation may
affect our business in the medium- to long-term. In particular,
our operating expenses may be affected by a tightening of the
job market, resulting in increased pressure for salary
adjustments for existing employees and higher cost of
replacement for employees that are terminated or resign.

Recent Accounting Pronouncements

In June 2002, the FASB issued SFAS
No. 146, “Accounting for Exit or Disposal
Activities.” SFAS No. 146 addresses significant issues
regarding the recognition, measurement, and reporting of costs
that are associated with exit and disposal activities, including
restructuring activities that are currently accounted for under
EITF No. 94-3, “Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring).” The scope of SFAS No. 146 also
includes costs related to terminating a contract that is not a
capital lease and termination benefits that involuntarily
terminated employees receive under the terms of a one-time
benefit arrangement that is not an ongoing benefit arrangement
or an individual deferred compensation contract. SFAS
No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002. The Company adopted
SFAS No. 146 on January 1, 2003. SFAS No. 146
prospectively changes the timing of when restructuring charges
are recorded from the commitment date to the date that liability
is incurred. The adoption of SFAS No. 146 did not have a
material effect on our financial position or results of
operations.

In November 2002, the FASB issued FASB
Interpretation (“FIN”) No. 45,
“Guarantor’s Accounting and Disclosure Requirements
for Guarantees, including Indirect Guarantees of Indebtedness of

Others.” FIN 45 requires that a
liability be recorded in the guarantor’s balance sheet upon
issuance of a guarantee. In addition, FIN 45 requires
disclosures about the guarantees that an entity has issued,
including a reconciliation of changes in the entity’s
product warranty liabilities. The initial recognition and
initial measurement provisions of FIN 45 are applicable on
a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor’s
fiscal year-end. The disclosure requirements of FIN 45 are
effective for financial statements of annual periods ending
after December 15, 2002, but had no impact on us. The
adoption of FIN No. 45 did not have a material effect on
our financial position or results of operations.

In November 2002, the Emerging Issues Task Force
(“EITF”) reached a consensus on EITF Issue
No. 00-21, “Accounting for Revenue Arrangements with
Multiple Deliverables” (EITF No. 00-21). EITF
No. 00-21 provides guidance on how to account for
arrangements that involve the delivery or performance of
multiple products, services and/or rights to use assets. The
provisions of EITF 00-21 apply to revenue arrangements
entered into in fiscal periods beginning after June 15,2003. The adoption of EITF 00-21 did not have a material
effect on our financial position or results of operations.

In January 2003, the FASB issued FIN
No. 46, “Consolidation of Variable Interest
Entities,” and in December 2003 the FASB issued
FIN 46-R, a revised interpretation of FIN 46.
FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics
of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
FIN 46 is effective immediately for all new variable
interest entities created or acquired after January 31,2003. For variable interest entities created or acquired prior
to February 1, 2003, the provisions of FIN 46-R must
be applied in the year ending December 31, 2004. The
adoption of this standard did not have an impact on our
financial position or results of operations since we have not
invested in any variable interest entities.

In May 2003, the FASB issued SFAS
No. 150, “Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity.” The
Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity and further requires that an issuer
classify as a liability (or an asset in some circumstances)
financial instruments that fall within its scope because that
financial instrument embodies an obligation of the issuer. Many
of such instruments were previously classified as equity. The
statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period beginning after
June 15, 2003 except for, nonpublic entities, as defined,
it is effective beginning after December 31, 2004. The
adoption of this standard does not have an impact on our
financial position or results of operations since we currently
do not have any financial instruments that would require
classification as a liability.

In April 2004, the EITF issued Statement
No. 03-06 “Participating Securities and the Two-Class
Method Under FASB Statement No. 128, Earnings Per
Share” (“EITF 03-06”). EITF 03-06
addresses a number of questions regarding the computation of
earnings per share by companies that have issued securities
other than common stock that contractually entitle the holder to
participate in dividends and our earnings when, and if, it
declares dividends on its common stock. The issue also provides
further guidance in applying the two-class method of calculating
earnings per share, clarifying what constitutes a participating
security and how to apply the two-class method of computing
earnings per share once it is determined that a security is
participating, including how to allocate undistributed earnings
to such a security. EITF 03-06 is effective for fiscal
periods beginning after March 31, 2004. We are currently
evaluating the effect of adopting EITF 03-06.

Qualitative and Quantitative Disclosures about
Market Risk

We do not use derivative financial instruments in
our investment portfolio and have no foreign exchange contracts.
Our financial instruments consist of cash and cash equivalents,
trade accounts

receivable, accounts payable and long-term
obligations. We consider investments in highly-liquid
instruments purchased with a remaining maturity of 90 days
or less at the date of purchase to be cash equivalents. Our
exposure to market risk for changes in interest rates relates
primarily to our short-term investments and short-term
obligations; thus, fluctuations in interest rates would not have
a material impact on the fair value of these securities. A
hypothetical 1% increase or decrease in interest rates would not
have a material impact on our earnings or loss, or the fair
market value or cash flows of these instruments.

We are a leading global online media company
serving the lesbian, gay, bisexual and transgendered, or LGBT,
community, a market with reported buying power of approximately
$485 billion annually in the United States alone. Our
network of websites, including our flagship websites Gay.com and
PlanetOut.com, allows our members to connect with other members
of the LGBT community around the world. We generate most of our
revenue from subscription fees for premium membership services
that we offer in English, French, German, Italian, Portuguese
and Spanish to our members who reside in more than 100
countries. We also generate revenue from online advertising and
e-commerce targeted to the LGBT community.

Our membership base is large and growing. We
believe that our base of over 3.3 million active members
constitutes the most extensive network of gay and lesbian people
in the world. In the twelve month period ended March 31,2004, we registered more than 2.2 million new members, or
an average of over 6,000 new member registrations per day.
Registration is free and allows access to integrated services,
including profile creation and search, chat and instant
messaging. By paying a fee, however, members may become
subscribers with access to our premium membership services,
including advanced search, unlimited access to profiles and
photographs, enhanced chat and premium content. Since we
introduced our premium membership services in 2001, our
subscribers have grown rapidly to more than 105,000 as of
March 31, 2004, with a weighted average monthly
subscription fee of approximately $12.00 per subscriber.

Through our global reach, we believe that we are
able to provide advertisers with unparalleled access to the LGBT
community. We generate revenue from run-of-site advertising,
sponsorship of specialized content channels, advertising on our
online-community areas, member-targeted emails and research for
our advertisers. We have run advertising campaigns on our
network for numerous Fortune 500 and other companies.

We also offer our users access to specialized
shopping and travel products and services through our
transaction-based websites. Through Kleptomaniac.com, we offer
fashion, video and music products. Through OutandAbout.com, we
provide access to premium content targeted to gay and lesbian
travelers.

Industry Background

The Internet is a global communications medium,
enabling millions of people to obtain and share information,
interact with each other and conduct business electronically.
Worldwide, the number of Internet users has grown from
approximately 390 million in 2000 to more than
700 million in 2003 and is expected to reach over one
billion by 2007, according to estimates from International Data
Corporation, or IDC. IDC also estimates that worldwide
e-commerce revenue grew from approximately $359 billion in
2000 to more than $1.6 trillion in 2003.

Online Content Spending

The online paid content and services market has
grown alongside the growth in Internet usage generally, as an
increasing number of consumers have shown a willingness to pay
for Internet content and services. The Online Publishers
Association estimates that revenue from online services exceeded
$1.6 billion for the twelve month period ended
December 31, 2003, and that the dating and personals
category accounted for the largest share of this amount, with
revenue of approximately $450 million, or 28% of the total.
The Online Publishers Association also reports that the dating
and personals category is one of the largest growth areas on the
Internet with revenue from that category for the year ended
December 31, 2003 increasing by approximately 48.8% over
revenue for the same period ended December 31, 2002.

Across the entire U.S. online advertising
market, IDC forecasts an increase in spending from
$5.7 billion, or 2.4%, of the $237 billion spent in
the United States in 2002 on all forms of advertising, to
$12.8 billion projected to be spent in 2007. We believe
that online advertising will grow and diversify as it captures a
larger share of total advertising dollars. The largest online
advertising-based business models now regularly attempt to
attract national advertisers with cross-media campaign
opportunities, while smaller, niche advertising businesses are
increasingly offering the option of advertising online as a
means of focusing their marketing efforts on specific audiences
who are often not efficiently reached through general
advertising campaigns or other advertising media.

LGBT Demographics and Media
Coverage

According to a report prepared by Witeck-Combs
Communications, Inc. and Harris Interactive, Inc., approximately
7%, or 15 million adults in the general
U.S. population identify themselves as gay, lesbian,
bisexual or transgendered. This report also estimates that gay
and lesbian consumers in the United States have combined buying
power of approximately $485 billion annually and per capita
buying power higher than that of the African American, Asian
American or Hispanic American communities. LGBT consumers are
also loyal: the same report estimates that 72% of gay and
lesbian consumers prefer brands that advertise uniquely to them
and that 77% have reported to have switched to brands offered by
companies with a positive stance towards gay and lesbian people.

We believe that of all of the major media
formats, the Internet has the greatest potential for reaching
the LGBT community in large, targeted numbers, in part because
of the desire for discretion which many members of the LGBT
community feel and the lack of LGBT-focused media alternatives
in many geographic areas. Approximately 80% percent of gay men
and 76% of lesbians regularly access the Internet, according to
Forrester Research. According to the Witeck-Combs/Harris
Interactive report, 25% of gay and lesbian people spend more
than 21 hours online per week, excluding email, compared to
18% of heterosexual people. As a leading online LGBT-focused
media company, we believe that we are uniquely positioned to
take advantage of the opportunities presented by this market.

The non-Internet based, or offline, LGBT media
industry is fragmented and consists largely of independent print
publications and a limited number of radio stations, television
programs and cable outlets. We do not believe that any of these
offline media formats offer the targeted global reach and
network efficiencies that our services provide. Our base of
2.2 million active U.S. members is over ten times the
total audited circulation of the top three LGBT-focused print
publications in the United States. While gay-themed television
shows such as “Will & Grace,”“Queer as
Folk” and “Queer Eye for the Straight Guy” have
attracted large audiences, we believe that their focus on a
general audience makes them less attractive to advertisers who
want to reach the LGBT market in the most cost-effective way.

Competitive Strengths

We believe that the following competitive
strengths have led to our growth:

Critical Mass of Active
Members. We believe that our base of
over 3.3 million active members constitutes the largest
network of gay and lesbian people in the world. We have expanded
our reach and market position by offering our services in six
languages to members who reside in more than 100 countries
through our flagship websites and through localized versions of
our Gay.com website. This critical mass helps us grow and serves
as a barrier to entry for our potential competitors, as new
members looking for friendships, dating and long-term
relationships are attracted to the large pool of current members
on our websites. We also believe that the size and attractive
demographic characteristics of our global membership base are
appealing to advertisers who seek cost-effective ways to target
the LGBT market.

Compelling Features.
We offer compelling editorial and programming content to the
LGBT community. We believe that our rich and varied LGBT-focused
content, the integration of our chat, profile

and instant messaging features and the ability of
our members to generate and share their own content and interact
with one another keep our members returning to our websites.
This increases our member-to-member and member-to-content
connections and provides us with more opportunities to convert
members into paying subscribers.

Scalable Business
Model. We believe that we have a
scalable, low cost business model. As with many subscription
business models, we believe that the marginal cost to us of
providing services to each new subscriber is low. However,
unlike most traditional subscription models, much of the content
and interaction available through our network of websites is
generated by members at little cost to us. Each additional user
on our websites also generates additional advertising capacity
at little incremental cost.

Strong Community
Affinity. We believe that we have
developed a loyal, active community of members. The viral
marketing that occurs through our members is an important source
of our growth, as increasing social interaction among members
within our online community and word-of-mouth in the broader
LGBT community help us obtain new members, retain members, drive
return visits and convert members into paid subscribers. We also
believe that the Gay.com domain name is a powerful brand that
helps reinforce our position as the leading network of LGBT
people in the world.

Growth Strategy

Our goal is to enhance our position as an
LGBT-focused media market leader by connecting, enriching and
illuminating the lives of gay and lesbian people worldwide. We
intend to achieve this through the following strategies:

Growing Traffic and
Membership. We intend to leverage our
critical mass of members to increase the number of our users,
members and subscribers and increase revenue.

•

Increased Marketing.
While our membership and subscriber bases have grown
historically without significant product marketing investments,
we plan to expand our recently rolled-out multi-channel
marketing programs to help drive traffic, member and subscriber
growth. We plan to market directly to consumers through online
banner advertisements, keyword buys and affiliate programs as
well as through traditional means, such as print advertising in
gay and lesbian newspapers and magazines and targeted outdoor
advertising in gay- and lesbian-identified neighborhoods. We
also plan to increase our visibility through sponsorship of and
participation at community events such as the annual LGBT pride
celebration events.

•

Compelling New
Features. We plan to add new features
and services such as friends lists, message boards,
member-generated groups, access to member-generated audio and
video content and the ability to reply to both Gay.com and
PlanetOut.com profiles from a single account.

•

International
Expansion. We plan to expand the
number of languages in which we offer our services, the number
of localized versions of our Gay.com website and the marketing
of our services in Europe, Asia, Australia and South America. In
addition, we plan to roll out multi-currency payment options
that we believe will contribute to growth in our international
subscriber base.

Retaining
Subscribers. As with other
subscription services, we can increase revenue by retaining
subscribers for longer periods of time. We believe we can
achieve this by offering our subscribers an enhanced product
offering, including live customer support, by reducing credit
card failures through

enhancements to our current transaction system,
by providing new value-added services and by attracting
subscribers to longer-term subscription plans. For example, in
February 2004, we launched live customer support for all North
American Gay.com Premium Services subscribers. We plan to expand
our live customer support to all of our premium membership
subscribers to further improve subscriber retention.

Capitalizing on Growth of Internet Advertising
and Increased Acceptance of the LGBT
Market. We believe that our large
active membership provides us with significantly greater reach
than traditional LGBT-focused media and that we are well
positioned to benefit from competition among advertisers wishing
to target the LGBT community. In addition, by expanding our
online content, we believe that we can grow advertising
inventory and direct traffic on our websites to areas that
generate higher advertising revenue for us. We anticipate that
this will also broaden our advertiser base. We plan to expand
our online content by acquiring content from third parties and
by producing new content for our topic areas such as our style
and family channels. We believe we can drive traffic to these
higher revenue areas by integrating relevant content promotions
within our community areas and profile pages and by producing
new sponsorable content sections, including an HIV-educational
series for our health channel and a wedding registry for our
family channel. We intend to launch a localized business
directory and classifieds section to attract smaller local
advertisers.

Leveraging Content and Online Reach into Other
Media. We believe that the LGBT market
is underserved compared to other niche markets such as the
African American, Asian American and Hispanic American markets.
We intend to leverage our online reach and relationships with
our members to expand into other media such as print, through
either in-house initiatives, strategic partnerships or
acquisitions of other businesses. We are also continuously
evaluating other markets and opportunities, such as acquisition
or in-house development of other subscription based services and
e-commerce businesses. We believe that by bundling services
acquired through this expansion, for example, by offering print
magazine subscriptions to new premium membership subscribers, we
can increase the subscriber base for our core membership
business, improve retention and grow our other advertising and
subscription revenue.

Premium Membership Services

We have offered Gay.com members free, real-time
chat service since 1996. We launched the PlanetOut.com personals
service in 1997, and we believe that PlanetOut.com was the first
website of significant size to offer free personals specifically
tailored to the LGBT community. In 2001, we created our paid
premium membership services, Gay.com Premium Services and
PlanetOut PersonalsPlus. Since we introduced our premium
membership services, our subscribers have grown rapidly to more
than 105,000 as of March 31, 2004, with a weighted average
monthly subscription fee of approximately $12.00 per
subscriber.

We do not charge fees for registering as a member
or creating a profile on our websites, but non-subscribers have
access to member profile photographs, may only perform basic
profile searches and have limited access to chat services. By
joining our paid premium membership services, a Gay.com Premium
Services or PlanetOut PersonalsPlus subscriber may reply to an
unlimited number of profiles, bookmark and block profiles,
perform advanced profile searches and view all full-sized
photographs posted by other members.

We offer both Gay.com Premium Services and
PlanetOut PersonalsPlus under tiered subscription plans.
Subscriptions to PlanetOut PersonalsPlus, our more traditional
search-and-reply personals service, begin at $4.95 for a
seven-day trial, with $12.95 for a monthly subscription, $29.95
for a quarterly subscription and $69.95 for a yearly
subscription. The Gay.com Premium Services package is more
technologically sophisticated and is currently available in six
languages, English, French, German, Italian, Portuguese and
Spanish. Gay.com Premium Services subscribers are also able to
use advanced real-time features such as an international chat
service offering more than 1,500 chat rooms, including video
chat. Subscriptions to Gay.com Premium Services begin at $9.95
for a seven-day trial, with $16.95 for a monthly subscription,
$39.95 for a quarterly subscription and $79.95 for an annual
subscription. We renew

and re-bill all subscriptions on Gay.com and
PlanetOut.com automatically, unless the subscription is
affirmatively cancelled.

Although neither premium membership
service’s subscriber base is exclusively gay or lesbian, as
of March 31, 2004, approximately 97% of the subscribers to
Gay.com Premium Services identified themselves as male, compared
to approximately 51% of the subscribers to PlanetOut
PersonalsPlus who identified themselves as female.

We believe that our chat service is now the
largest LGBT chat service in the world. During the quarter ended
March 31, 2004, on average, approximately 19,000
simultaneous members were logged on to our Gay.com chat and
instant messaging services, up from approximately 15,000 during
the same period ended March 31, 2003. In addition, at peak
on January 25, 2004, we had over 30,000 members from around
the world simultaneously logged in to our chat and instant
messaging services. We also believe that our chat services
encourage members to create profiles, which in turn increases
their likelihood of becoming paid subscribers. Average chat
usage grew more than 25% during the twelve months ended
March 31, 2004. During that same twelve month period, the
number of subscriptions grew by approximately 19%.

We market our Gay.com and PlanetOut premium
subscription services in the United States and internationally
through a broad spectrum of advertising tools, including keyword
and other online advertising, affiliate relationships, print and
outdoor advertising, events, word-of-mouth, direct and email
marketing, contests and other promotional activities.

Advertising Services

Advertisers are increasingly targeting
demographic niche markets, such as the African American, Asian
American and Hispanic American markets in the United States. At
the same time, we believe that the LGBT community is becoming
more visible and more accepted globally, both in the corporate
world and in popular culture. This increased visibility and
acceptance has resulted in more advertisers identifying gay and
lesbian people as an underserved niche market with attractive
demographics that they wish to target with their advertising
budgets. We believe that traditional advertisers are allocating
larger portions of their budgets to the Internet, a trend that
we believe will accelerate as the effectiveness of online
advertising becomes more widely accepted. We also believe that
we are uniquely positioned to capture a portion of what we
believe may be a significant increase in advertising dollars
spent online targeting the LGBT market.

Our Value Proposition to
Advertisers

We believe that we provide advertisers with a
number of effective and innovative ways to reach both the larger
LGBT community and those segments within the LGBT community that
may share a particular affinity for their products or services.
Our value proposition to advertisers includes:

•

Focused Online
Advertising. We believe that we
deliver access to the largest network of gay and lesbian people
in the world. Our online advertising programs allow advertisers
the potential to reach our entire user base with run-of-site
advertisements, or to target only those users who share certain
common attributes such as age, gender or geographic location. By
dividing our content offerings into topic sections within
channels, we provide our advertisers with the ability to target
their marketing efforts further, by sponsoring topic sections or
running individual advertisements in channels specifically
relevant to their particular products and services or brand
strategy.

•

Brand Awareness Through
Sponsorship. Our advertisers can reach
our members by sponsoring email newsletters, sweepstakes or
other contests on our websites and offline events, including
special nights at select gay and lesbian nightclubs or
representation at LGBT Pride celebrations.

Targeted Mail
Campaigns. Advertisers can also elect
to sponsor a “member special” email consisting
entirely of an advertisement for their product or service.
Member special emails are sent periodically to our members who
have requested to receive materials by email. We also provide
advertisers with the opportunity to advertise via direct mail to
approximately 250,000 of our members who have elected to receive
materials by mail.

•

Research and
Analysis. We engage third parties to
conduct independent research on user panels assembled from our
membership base regarding the effectiveness of specific
campaigns as well as other matters of interest to our
advertisers. Campaign studies examine the effect the campaign
had on brand awareness, brand attributes, message association,
brand favorability, purchase intent and advertisement recall and
can include an analysis of the research and recommendations for
future advertising campaigns. In addition to benefiting the
advertiser, this type of research helps educate us on how to
more effectively position and manage campaigns for our
advertisers.

The following is a breakdown of our global
advertising revenue by category for the year ended
December 31, 2003:

Percentage of Global Advertising

Category

Revenue in 2003

Travel

18

%

Healthcare & Pharmaceutical

14

%

Finance

12

%

Telecommunications

11

%

Entertainment

8

%

Automotive

8

%

During the years ended December 31, 2003 and
December 31, 2002, our five largest advertisers accounted
for approximately 19% and 20%, respectively, of our global
advertising revenue. No advertiser accounted for more than 6% of
our global revenue during either year.

In the United States in 2003, we saw growth in
both the average number of active campaigns per month and in the
average size of campaigns. The average number of active
campaigns per month rose from approximately 34 in the first
quarter of 2003 to just over 40 in the fourth quarter. We have
also recently seen an increase in the average amount that our
advertisers spend overall per campaign in the United States, up
from $20,100 in 2003 to $33,600 in the first quarter of 2004. We
believe that growing competition among advertisers for exclusive
arrangements on our websites, either by category or channel, has
the potential to increase our revenue.

We market our advertising services through our
domestic and international sales force of approximately nine
full and part-time employees. We have six full-time sales
employees in the United States, two full-time sales
employees in the United Kingdom and one full-time sales
employee in Argentina. Our sales representatives are focused on
specific advertising categories, and sell across our networks in
the United States, Europe and Latin America.

Transaction Services

Through our e-commerce and travel websites,
Kleptomaniac.com and OutandAbout.com, we offer products and
services of interest to the LGBT community. We currently
advertise both Kleptomaniac.com and OutandAbout.com on our
flagship websites and we provide links to these sites throughout
our network.

Through Kleptomaniac.com, we sell products of
interest to the LGBT community at attractive margins while
striving to manage our inventory risk. We hold inventory for a
portion of the products that we sell, including CDs, DVDs and
videotapes at our on-site fulfillment center in our
San Francisco facility.

For other products, such as fashion products and
accessories, we have historically engaged third-party vendors to
hold inventory and fulfill orders. We believe that these
arrangements allow us to reduce buying and fulfillment costs and
the risk of holding unwanted inventory, while providing us with
higher and more consistent margins on the sale of these products.

Through OutandAbout.com, we sell guides to
particular destinations or events that we believe are popular
among gay and lesbian people. We also sell back issues of
Out&About, our gay and lesbian travel newsletter through the
website. These guides and back issues are available for download
in PDF format for a one-time transaction fee.

Product Development and Technology

Our product development teams have introduced
features that are intended to enhance and integrate our member
services. For example, on Gay.com we have integrated our chat
application with searchable member profiles, so member
information, photographs and connection capabilities are
seamlessly available. We offer enhanced profile search
capabilities using library technologies to help members navigate
profiles and find closer profile matches. We have developed a
“Who’s Online” feature to enable members to see
other members online and in chat rooms from a particular city or
other geographic area and send them private messages. We have
also built external and internal advertising space into chat
rooms and personals areas, driving clicks and conversions to our
services and to those of our advertisers. In the future, we plan
to introduce social networking lists, member groups and clubs, a
downloadable desktop version of our chat and messaging client,
mobile messaging and multimedia enhancements to member profiles.

Our capital expenditures are primarily focused on
supporting the growth of our services. We strive to centralize
our business in many classes of hardware and software with a
single primary vendor when we believe that it is feasible to do
so. By reducing the number of systems that we use, we believe
that we are better able to manage our systems and achieve
attractive pricing with vendors with whom we have established
relationships.

Our basic network infrastructure utilizes
redundant, low-cost single processor servers supported by
high-capacity, high-performance database and file servers from
established vendors to handle our critical processes. We
primarily utilize open source software and widely scalable, low
cost servers to reduce cost while we expand technological
capacity to handle increased load. We use the same platform for
our Gay.com, PlanetOut.com and Kleptomaniac.com websites. We
track and monitor the growth of traffic on our websites and
strive to maintain a reserve for extraordinary loads. We attempt
to streamline and consolidate our technology as we upgrade our
equipment to increase capacity. We believe our infrastructure
allows us to scale and grow our business at relatively low cost
with little disruption to our members.

Competition

We operate in a highly competitive environment.
We believe that the primary competitive factors in creating a
community on the Internet are functionality, brand recognition,
member affinity and loyalty, ease-of-use, quality of service,
reliability and critical mass. In all our business lines, we
compete with a number of large and small companies, including
vertically integrated Internet portals and specialty focused
media that provide online and offline products and services to
the LGBT community. In our subscription business, we compete
with other online service companies, such as Match.com and
Yahoo! Personals, as well as a number of other smaller online
companies focused specifically on the LGBT community. In our
online advertising business, we compete with a broad variety of
content providers, including major online service companies such
as Yahoo!, MSN and AOL. We also compete with offline LGBT media
companies, including local newspapers, national and regional
magazines, satellite radio, cable shows and networks and
broadcast television shows. In our transaction services business
we compete with online and offline retailers, including
retailers who specialize in products and services for the LGBT
market.

We use a combination of trademark, copyright and
trade secret laws and confidentiality agreements to protect our
proprietary intellectual property. We have registered several
trademarks in the United States, including
“PlanetOut,”“PlanetOut and Design,”“Gay.com and Design,”“Kleptomaniac” and
“OUT & ABOUT.” We have registered or
applied for additional protection for several of these
trademarks in some relevant international jurisdictions. Even if
these applications are allowed, they may not provide us with a
competitive advantage. To date, we have relied primarily on
common law copyright protection to protect the content posted on
our websites. Competitors may challenge the validity and scope
of our trademarks and copyrights. From time to time, we may
encounter disputes over rights and obligations concerning our
use of intellectual property. We believe that the services we
offer do not infringe the intellectual property rights of any
third party. We cannot, however, assure you that we will prevail
in any intellectual property dispute.

Employees

As of March 31, 2004, we had
122 full-time employees worldwide, including eight
full-time employees in the United Kingdom and seven in
Argentina. Of these, 33 were employed in subscription services,
15 in advertising services, 37 in technology and engineering, 19
in general and administrative services, 12 in editorial, four in
transactional services and two in corporate marketing. We
utilize part-time and temporary employees to handle overflow
work and short-term projects. As of March 31, 2004, we had
six part-time or temporary employees. None of our employees
are unionized, and we believe that we have good relations with
our employees.

Facilities

Our executive offices are located in
San Francisco, California, where we lease approximately
30,500 square feet under a sublease that expires in January
2005. We also lease additional office space in New York,
Buenos Aires and London to support our advertising sales and
international operations.

Legal Proceedings

In November 2000, a former employee of ours filed
a lawsuit alleging breach of contract, fraud and numerous other
business torts. In July 2001, the San Francisco Superior
Court ordered the parties to mediate the case and, if the
mediation proved unsuccessful, to arbitrate the case. The matter
was mediated in March 2004, but we were unable to reach
agreement with the plaintiff. We believe that we have
meritorious defenses to these claims, and we intend to defend
ourselves vigorously in this matter.

In April 2002, DIALINK, a French company, filed a
lawsuit in France against PlanetOut and our French subsidiary,
alleging that we had improperly used the domain names Gay.Net,
Gay.Com and Fr.Gay.Com in France, as DIALINK alleges that it has
exclusive rights to use the word “gay” as a domain
name and trademark in France. DIALINK seeks an injunction
against the use of the word “gay” as a domain name and
monetary damages of
€300,000. We
believe that we have meritorious defenses to these claims, and
we intend to defend ourselves vigorously in this matter.

Lowell R. Selvinhas
served as the Chairman of our board since August 2003 and as our
Chief Executive Officer since April 2001. From July 1999 until
April 2001, he served as Chief Executive Officer of Online
Partners.com, Inc. From November 1998 until joining Online
Partners, Mr. Selvin was an independent consultant. From
December 1995 until October 1998, Mr. Selvin was Chief
Executive Officer and a member of the board of directors of
Arbonne International, a direct sales company. Previously, he
was a Practice Director and firm-wide leader for Arthur Andersen
Business Consulting in Strategic Planning, a co-founder,
Executive Vice President and Director for Degree Baby Products,
a consumer products company that was acquired by
Johnson & Johnson, and Director of Operations and
Customer Service for a high technology business serving the
Fortune 500 that was acquired by Telecredit/Equifax. Among
other civic involvements, Mr. Selvin is a founding member
and Chairman of the Gay and Lesbian Focus Forum of the Young
Presidents’ Organization, serves on the advisory boards of
the Gay & Lesbian Athletics Foundation, MOSAIC: The
National Jewish Center for Sexual and Gender Diversity and the
Hebrew Union College’s Institute for Judaism and Sexual
Orientation and has served on the boards of directors of the Los
Angeles Gay & Lesbian Center, West Hollywood’s
Congregation Kol Ami and the Child Guidance Centers of Orange
County California. Mr. Selvin holds an interdisciplinary
B.S. combining majors in Physiological Psychology and
Aeronautical and Astronautical Engineering from the University
of Illinois.

Mark D. Elderkin has
served as our President since November 2003. From April 2001
until November 2003, Mr. Elderkin served as our Chief
Revenue Officer. He served as President and Chief Operating
Officer of Online Partners, from January 1999 until April 2001.
From July 1994 until January 1999, Mr. Elderkin served as
President and Chief Executive Officer of PrideCom Productions
LLC and PrideCom Productions, Inc., the operator of Gay.com,
which he co-founded and which was acquired by Online Partners.
Mr. Elderkin has held product management positions with
RadioMail Corporation, CellNet Data Systems and Network
Equipment Technologies. Mr. Elderkin holds a B.S. in Systems

Engineering from Boston University and a M.B.A.
with a concentration in International Marketing from the Haas
School of Business at the University of California, Berkeley.

Jeffrey T. Soukup
currently serves as our Executive Vice
President and Chief Financial Officer. Mr. Soukup joined
Online Partners in August 2000 as its Chief Financial Officer
and Senior Vice President, Administration. From August 1999
until August 2000, Mr. Soukup served as Vice President in
the consumer services and business development divisions of
ChannelPoint, Inc., a business-to-business Internet-based
finance company. From July 1998 until August 1999,
Mr. Soukup was a Vice President of GE Equity, the private
equity arm of the General Electric Corporation and, prior to
that, was a co-founder of Stamos Associates, Inc., a healthcare
consulting business which was acquired by Perot Systems
Corporation. Previously, Mr. Soukup was legislative counsel
to Senator Bill Bradley, was a Senior Associate at Booz
Allen & Hamilton Inc., a consulting firm, and was an
associate at the law firm of Kirkland & Ellis.
Mr. Soukup sits on the board of directors of the Gay and
Lesbian Alliance Against Defamation (GLAAD) and was a
co-chair of the board of directors of the Gay and Lesbian
Victory Fund. He holds a B.A. in International Relations and a
M.A. in International Policy Studies from Stanford University
and a M.B.A. with a concentration in Finance and a J.D. from the
University of Chicago.

Jeffrey J. Titterton
joined us in April 2001 and currently
serves as our Senior Vice President, Member Sales and Marketing.
From October 2000 until April 2001, Mr. Titterton served as
marketing director for Kleptomaniac.com, which was acquired by
Online Partners. From April 1999 to May 2000, Mr. Titterton
served as an editorial supervisor for the Silicon Valley office
of AlexanderOgilvy Inc., a public relations firm, and before
that as an editor and managing editor of Future Network USA
(formerly Imagine Media), a consumer magazine publisher.
Mr. Titterton sits on the board of directors of the Family
Pride Coalition. He holds a B.A. in English Literature with a
concentration in Economics from Cornell University.

Jerry Colonnahas
served on our board since April 2001. From January 2002 until
December 2002, Mr. Colonna was a partner with JPMorgan
Partners, the private equity arm of JP Morgan Chase. Since
August 1996 Mr. Colonna has been a partner with Flatiron
Partners, an investment company which he co-founded.
Mr. Colonna sits on the boards of directors of a number of
private companies as well as a number of non-profit
organizations including PENCIL — Public Education
Needs Civic Involvement in Learning, NYPower NY and NYC2012.
Mr. Colonna holds a B.A. in English Literature from Queens
College at the State University of New York.

H. William
Jesse, Jr. has served on our
board since April 2001. Mr. Jesse is Chairman and Chief
Executive Officer of Jesse Capital Management, Inc., an
investment firm he founded in 1998 and is also Chairman and
Chief Executive Officer of Modern Yachts, Inc., a design firm he
founded in 2000. In 1986, Mr. Jesse founded Jesse
Hansen & Co., a strategic and financial advisory firm.
He served as its Chairman from 1986 until 2004 and as President
from 1986 until 1998. Mr. Jesse served as Chairman and
Chief Executive Officer of Vineyard Properties Corporation, a
developer of wine grape vineyards, from 1988 until 2002.
Mr. Jesse sits on the board of directors of Peets Coffee
and Tea, Inc. and a number of private companies. Mr. Jesse
holds a B.S. in Economic Statistics and Finance and a M.S. in
Operations Research from Lehigh University and a M.B.A. from the
Harvard Business School.

Robert W. Kinghas served on our board from April
2001 to August 2003 and from February 2004 to the present.
Mr. King has been president of King Pacific Capital
Corporation, a private venture capital firm that specializes in
early stage equity and debt investments, since 1995. In
addition, since 1996 he has also been a principle of Westbridge
Capital Group, a full service commercial mortgage brokerage
firm. Mr. King sits on the boards of several private
companies. He holds a B.A. from the University of British
Columbia and an M.B.A. from Dalhousie University.

Karen Mageehas
served on our board since September 2003. Ms. Magee has
been Senior Vice President of Strategic Planning for Time Warner
since April 2004. She served as Senior Vice President of
Strategic Planning for Time Inc. from February 2001 until April
2004. From February 1996 until February 2001, she was with TIME
magazine where she served as General Manager for four years and
more recently as Vice President of Consumer Marketing.
Ms. Magee sits on the Princeton University Board of

Trustees and serves as Co-Chair of the
GLAAD board of directors. Ms. Magee holds a B.S.E.
from Princeton University and a M.B.A. from the Wharton School
of the University of Pennsylvania.

Allen Morganhas
served on our board since April 2001. Since January 1999,
Mr. Morgan has been a General Partner or Managing Director
of Mayfield, a venture capital fund. From April 1997 until
December 1998, Mr. Morgan was a partner in the corporate
department of the law firm of Latham & Watkins LLP.
From November 1992 until May 1997, Mr. Morgan was an
associate and a partner in the corporate department of the law
firm of Wilson, Sonsini, Goodrich & Rosati P.C.
Mr. Morgan sits on the board of directors of The Varsity
Group, Value Vision Media, Inc. and a number of private
companies. Mr. Morgan received an A.B. degree from
Dartmouth College, a B.A. and an M.A. from Oxford University and
a J.D. from the University of Virginia.

Gabrielle P. Benefield
joined us in May 2002 and currently
serves as our Vice President, Product Development. From November
2000 until November 2001, she was a Senior Project Manager
/Engagement Manager with CollabNet, a developer of
Internet-based collaborative development solutions and
consulting services. From March 2000 until September 2000,
Ms. Benefield was a Senior Producer with IBM Global
Services, the world’s largest IT services and consulting
group. From January 1999 until February 2000, Ms. Benefield
was an Executive Producer at Next Media, a print and online
publisher. Ms. Benefield received her Masters of Design in
digital media from the University of Western Sydney, Australia,
a Software Engineering Management Certificate from the
University of California, Santa Cruz and holds a certification
from the Project Management Institute.

Elizabeth Paige
Brooks joined us in September 2001 and
currently serves as our Vice President, Human Resources. From
May 2000 until August 2001, she was a Director of Human
Resources for Sony Music’s New Technology group, and was a
member of the executive team for several incubated portfolio
companies, including acting as Human Resources Director for a
company focused on broadband music distribution technology. From
October 1999 until May 2000, Ms. Brooks was a Human
Resources Manager with Work Exchange, a freelance employment
agency. Prior to that, Ms. Brooks was a Major Account
Service Manager with Spherion, a temporary staffing agency,
where she managed over 700 temporary employees. She received a
B.A. in Psychology from the University of Texas at Austin.

David M. DeFelice
has served as our Vice President, Finance and Controller since
April 2001. He joined Online Partners in April 1999 following 16
years of employment with Westin Hotels and Resorts in operations
and accounting. Mr. DeFelice received a B.S. from Florida
International University and an M.B.A. from San Francisco State
University.

Leyla D. Farah
joined us in September 2000 and currently serves as our Vice
President of Programming and Production. From 1997 until August
2000, Ms. Farah was a member of Gap Inc.’s Planning
Solutions team, where she was responsible for developing
merchandise planning systems. She currently sits on the Steering
Committee for the San Francisco Chapter of the Human Rights
Campaign, and as an advisory board member for AIDS Project of
the East Bay. Ms. Farah received a B.A. in Psychology from
the University of Oregon’s Clark Honors College and a J.D.
from Boalt Hall School of Law at the University of California,
Berkeley.

Todd A. Huge joined
us in January 2001 and currently serves as Vice President,
Business and Legal Affairs. From February 1999 until
May 2000, he was an associate in the employment and labor
practice of the law firm of Paul, Hastings, Janofsky &
Walker, LLP. From September 1995 until December 1998,
he was an associate with the law firm of Fenwick & West
LLP. Mr. Huge received a B.S. in Mechanical Engineering
from Stanford University and a J.D. from Boalt Hall School of
Law at the University of California, Berkeley.

Portia M. Kersten
joined us in September 2002 and currently serves as our Vice
President, Corporate and Business Development. From October 1999
until January 2002, she was with GE Equity, the private equity
investing arm of the General Electric Corporation, most recently
as an Assistant Vice President where she made investments in
early and mid-stage companies. Prior to that, from January 1992

until April 1997, Ms. Kersten was an
engineer for Bechtel Corporation. Ms. Kersten received a
B.A. and an M.S. from Ohio State University and an M.B.A. in
Finance from Columbia University.

Diego Mathé
currently serves as our Vice President, Local Services. He
joined Online Partners in April 2000 as Vice President, Spanish
and Portuguese Operations. From 1998 until April 2000,
Mr. Mathé was Chief Production Officer of
Scopios.com SA, an online travel agency which he founded.
Mr. Mathé received a B.A. in Mass Communication from
the University of Buenos Aires.

Board of Directors

Our bylaws permit our board of directors to
establish by resolution the authorized number of directors, and
six directors are currently authorized. In accordance with our
restated certificate of incorporation, immediately after this
offering our board of directors will be divided into three
classes with staggered three-year terms. At each annual meeting
of stockholders, the successors to directors whose terms then
expire will be elected to serve from the time of election and
qualification until the third annual meeting following election.
Our directors have been divided among the three classes as
follows:

•

the Class I directors will be Robert W.
King and Allen Morgan, and their terms will expire at the annual
meeting of stockholders to be held in 2005;

•

the Class II directors will be H. William
Jesse, Jr. and Karen Magee, and their terms will expire at
the annual meeting of stockholders to be held in 2006; and

•

the Class III directors will be
Lowell R. Selvin and Jerry Colonna and their terms will
expire at the annual meeting of stockholders to be held in 2007.

Our amended and restated certificate of
incorporation provides that the authorized number of directors
may be changed only by resolution of the board of directors. Any
additional directorships resulting from an increase in the
number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of
one-third of the directors.

This classification of our board of directors
will make it more difficult for a third party to acquire control
of our company.

Committees of the Board of Directors

Our board of directors has established three
standing committees: the audit committee, the compensation
committee and the corporate governance and nominating committee.

Audit
Committee

Our audit committee is composed of
Mr. Jesse, Ms. Magee and Mr. King, each of whom
is a non-employee member of our board of directors. Our board
has determined that each member of our audit committee meets the
requirements for independence under the current requirements of
the Nasdaq Stock Market, Inc. and SEC rules and regulations.
Mr. Jesse is our audit committee financial expert, as that
term is defined under the SEC rules.

Our audit committee is responsible for overseeing
the preparation of reports, statements or charters as may be
required by the Nasdaq Stock Market, Inc. or federal securities
laws, as well as, among other things:

providing to the board additional information and
materials as it deems necessary to make the board aware of
significant financial matters that require the attention of the
board.

Compensation
Committee

Our compensation committee is composed of
Mr. Morgan, Mr. Colonna and Mr. King, each of
whom is a non-employee member of our board of directors. Each
member of our compensation committee is an “outside
director” as that term is defined in Section 162(m) of
the Internal Revenue Code of 1986 and is a
“non-employee” director within the meaning of
Rule 16b-3 of the rules promulgated under the Securities
Exchange Act of 1934. The compensation committee is responsible
for, among other things:

•

reviewing and approving for our chief executive
officer and other executive officers (a) the annual base
salary, (b) the annual incentive bonus, including the
specific goals and amount, (c) equity compensation and
(d) any other benefits, compensations, compensation
policies or arrangements;

•

reviewing and making recommendations to our board
regarding the compensation policy for such other officers as
directed by the board;

•

preparing a report to be included in our annual
proxy statement; and

•

acting as administrator of our current benefit
plans and making recommendations to the board with respect to
amendments to the plans, changes in the number of shares
reserved for issuance thereunder and regarding other benefit
plans proposed for adoption.

Corporate
Governance and Nominating Committee

Our corporate governance and nominating committee
is composed of Mr. Morgan, Ms. Magee and
Mr. Jesse, each of whom is a non-employee member of our
board of directors. The corporate governance and nominating
committee is responsible for, among other things:

•

reviewing board structure, composition and
practices, and making recommendations on these matters to the
board;

•

reviewing, soliciting and making recommendations
to the board and stockholders with respect to candidates for
election to the board;

•

overseeing compliance with our code of conduct
and ethics; and

•

overseeing compliance with corporate governance
requirements.

Director Compensation

Currently, we do not pay any cash compensation to
the members of our board of directors, except for reimbursing
our non-employee directors for reasonable travel expenses
incurred in connection with attendance at board and committee
meetings.

Compensation Committee Interlocks and Insider
Participation

No member of our compensation committee and none
of our executive officers has a relationship that would
constitute an interlocking relationship with executive officers
and directors of another entity.

Limitation of Liability and
Indemnification

Our restated certificate of incorporation limits
the personal liability of our board members for breaches by them
of their fiduciary duties. Our bylaws also require us to
indemnify our directors and executive officers to the fullest
extent permitted by Delaware law. Delaware law provides that
directors of

a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as
directors, except liability for any of the following acts:

•

any breach of their duty of loyalty to us or our
stockholders;

•

acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law;

•

unlawful payments of dividends or unlawful stock
repurchases, redemptions or other distributions; and

•

any transaction from which the director derived
an improper personal benefit.

This limitation of liability may not apply to
liabilities arising under the federal securities laws and does
not affect the availability of equitable remedies such as
injunctive relief or rescission. In addition and in accordance
with Delaware law, our bylaws also permit us to secure insurance
on behalf of any officer, directors, employee or other agent for
any liability arising out of his or her actions in such
capacity, regardless of whether indemnification would be
permitted under Delaware law. We currently maintain liability
insurance for our directors and officers.

We intend to enter into indemnification
agreements to indemnify our directors and executive officers, in
addition to the indemnification provided for in our restated
certificate of incorporation and bylaws. These agreements, among
other things, will provide for indemnification of our directors
and executive officers for various expenses including
attorneys’ fees, judgments, fines and settlement amounts
incurred by them in any action or proceeding, including any
action by or in the right of PlanetOut, arising out of their
services as a director or executive officer of ours, any
subsidiary of ours or any other company or enterprise to which
the person provided services at our request. We believe that
these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers.

At present we are not aware of any pending
material litigation or proceeding involving any of our
directors, officers, employees or agents of our company in such
person’s capacity with us where indemnification will be
required. We are also not aware of any threatened litigation or
proceeding that might result in a claim for indemnification.

The following table provides the total
compensation paid to our chief executive officer and our next
three most highly-compensated executive officers for the year
ended December 31, 2003. These executives are referred to
as our named executive officers elsewhere in this prospectus. We
do not have any other executive officers.

Consists of tax gross-up payments made in
connection with the forgiveness of the exercise price of certain
options to purchase common and series D preferred stock and
the restricted stock award of series B preferred stock. Tax
payments for Messrs. Selvin and Soukup were made in
January 2004.

(2)

None of the named executive officers received
option grants during the fiscal year ended December 31,2003.

(3)

The shares subject to these awards are subject to
a right of repurchase in favor of PlanetOut that lapses in
24 equal monthly installments beginning in February 2003.
As of December 31, 2003, 75,696, 56,782 and
32,634 shares held by Mr. Selvin, Mr. Soukup and
Mr. Titterton, respectively, were subject to this
repurchase right.

(4)

Includes $131,918 paid as a non-cash bonus in
connection with the exercise of stock options during 2003. Also
includes $4,509 of matching contributions for 2003 under our
401(k) plan.

(5)

Consists of sales commissions.

(6)

Consists of matching contribution for 2003 under
our 401(k) Plan.

(7)

Includes $74,901 paid as a non-cash bonus in
connection with the exercise of stock options during 2003. Also
includes $1,862 of matching contributions for 2003 under our
401(k) plan.

(8)

Includes $39,785 paid as a non-cash bonus in
connection with the exercise of stock options during 2003. Also
includes $2,266 of matching contributions for 2003 under our
401(k) plan.

Option Grants in Fiscal Year 2003.

None of our named executive officers received
option grants during the year ended December 31, 2003.
However, in April 2004, our named executive officers were
granted options to purchase an aggregate of 345,241 shares
of our common stock at an exercise price of $9.02 per share.

and value of securities underlying unexercised
options that were held by the officers as of December 31,2003. Each of the options listed in the table is immediately
exercisable. The numbers in the column entitled “Value of
Unexercised In-The-Money Options at December 31, 2003”
are based on the fair market value of our common stock of
$ at
December 31, 2003, as determined by our board of directors,
less the exercise price payable for these shares.

All of the outstanding options held by the named
executive officers are immediately exercisable. Of the options
outstanding at December 31, 2003, 241,614, 1,108, 66,842
and 68,251 shares, held by Messrs. Selvin, Elderkin, Soukup
and Titterton, respectively, would have been subject to a right
of repurchase in favor of PlanetOut in the event the options
were exercised.

Employment and Change of Control
Agreements

Mr. Selvin’s employment agreement was
amended and restated in April 2004, and provides that he will
receive a base salary of $298,000 per year, effective
October 1, 2004, plus a one-time bonus of at least $50,000
for work performed in 2004. Subject to approval by the board of
directors, Mr. Selvin will be eligible for an annual
incentive bonus with a target amount equal to 50% of his base
salary and for stock options on terms to be determined by the
board. If Mr. Selvin’s employment is terminated for
any reason other than cause or permanent disability, subject to
signing a release of any claims he may have against us, he will
be entitled to continued payment of his then current base salary
for twelve months, twelve months of accelerated vesting of his
then unvested stock options, and continuation of his health
insurance coverage for up to twelve months. If Mr. Selvin
is terminated for any reason other than cause or disability
within 16 months after a change of control of PlanetOut,
subject to signing a release, he will be entitled to continued
payment of his then current base salary for 24 months, the
greater of accelerated vesting of 50% of his then unvested stock
options or twelve months of accelerated vesting of those options
and continuation of his health insurance coverage for up to
24 months. We have also agreed to reimburse Mr. Selvin
for life and disability insurance premiums, subject to approval
of our compensation committee.

Mr. Elderkin’s employment agreement was
amended and restated in April 2004, and provides that he will
receive a base salary of $203,000 per year. Subject to
approval by the board of directors, Mr. Elderkin will be
eligible for an annual incentive bonus with a target amount
equal to 40% of his base salary and for stock options on terms
to be determined by the board. If Mr. Elderkin’s
employment is terminated for any reason other than cause or
permanent disability, subject to signing a release of any claims
he may have against us, he will be entitled to continued payment
of his then current base salary for twelve months, nine months
of accelerated vesting of his then unvested stock options and
continuation of his health insurance coverage for up to twelve
months. If Mr. Elderkin is terminated for any reason other
than cause or disability within 16 months after a change of
control of PlanetOut, subject to signing a release, he will be
entitled to continued payment of his then current base salary:
for 18 months, the greater of accelerated vesting of 50% of
his then unvested options or nine months of accelerated vesting
of those options and continuation of his health insurance
coverage for up to 18 months. We have also agreed to
reimburse Mr. Elderkin for disability insurance premiums of
up to $150 per month and life insurance premiums of up to
$100 per month.

Mr. Soukup’s employment agreement was
amended and restated in April 2004, and provides that he will
receive a base salary of $225,000 per year, plus a one-time
bonus of at least $25,000 for work performed in 2004. Subject to
approval by the board of directors, Mr. Soukup will be
eligible for an annual incentive bonus with a target amount
equal to 30% of his base salary and for stock options on terms
to be determined by the board. If Mr. Soukup’s
employment is terminated for any reason other than cause or
permanent disability, subject to signing a release of any claims
he may have against us, he will be entitled to continued payment
of his then current base salary for twelve months, nine months
of accelerated vesting of his then unvested stock options and
continuation of his health insurance coverage for up to twelve
months. If Mr. Soukup is terminated within 16 months
after a change of control of PlanetOut for any reason other than
cause or disability, subject to signing a release he will be
entitled to receive continued payment of his then current base
salary for a period of 18 months, the greater of
accelerated vesting of 50% of his then unvested options or nine
months of accelerated vesting of those options and continuation
of his health insurance coverage for up to 18 months. We have
also agreed to reimburse Mr. Soukup for disability
insurance premiums of up to $150 per month and life
insurance premiums of up to $100 per month.

Mr. Titterton’s employment agreement
was amended and restated in April 2004, and provides that he
will receive a base salary of $180,000 per year. Subject to
approval by the board of directors, Mr. Titterton will be
eligible for an annual incentive bonus and for stock options on
terms to be determined by the board. If
Mr. Titterton’s employment is terminated for any
reason other than for cause or permanent disability, subject to
signing a release of any claims he may have against us, he will
be entitled to continued payment of his then current base salary
for nine months, six months of accelerated vesting of his then
unvested stock options and continuation of his health insurance
coverage for nine months. If Mr. Titterton is terminated
within 16 months after a change of control of PlanetOut
other than for cause or permanent disability, subject to signing
a release, he will be entitled to continued payment of his then
current base salary for twelve months, the greater of
accelerated vesting of 50% of his then unvested options or six
months of accelerated vesting of those options and continuation
of his health insurance coverage for twelve months. We have
also agreed to reimburse Mr. Titterton for disability
insurance premiums of up to $150 per month and life
insurance premiums of up to $100 per month.

We have reserved a total of 545,454 shares
of our common stock for issuance under our 2004 equity incentive
plan. This share reserve is subject to annual increases on the
first day of each of our fiscal years 2005 through 2014 in an
amount equal to the lesser of 4% of the outstanding shares of
common stock on the first day of the applicable fiscal year or
545,454 shares. Our board may, however, reduce the size of
this increase in its discretion. Shares issued pursuant to our
2004 equity incentive plan may be newly authorized shares or
treasury shares. All share numbers reflected in this plan
summary, as well as the exercise price applicable to outstanding
awards, will be automatically proportionately adjusted in the
event we undertake certain changes in our capital structure,
such as stock splits, stock dividends or other similar
transactions.

Our board of directors or, with respect to
different groups of participants, different committees appointed
by our board of directors, will administer our 2004 equity
incentive plan. In the case of options intended to qualify as
“performance-based compensation” within the meaning of
Section 162(m) of the Code, the committee will consist of
two or more “outside directors” within the meaning of
Section 162(m)

of the Code. In addition, in administering our
2004 equity incentive plan, we intend to comply with other
applicable legal and regulatory requirements as may apply from
time to time, including any Nasdaq listing requirements. The
plan administrator has the power to determine the terms of all
awards granted, including their sizes, their exercise or
purchase prices, their exercise and vesting schedules, any
provisions calling for acceleration of those schedules upon
specified events, any forfeiture restrictions and the permitted
forms of consideration payable upon exercise or purchase of any
award. We currently anticipate that most options granted under
the plan awards will vest over four years, although the
vesting schedule for any award is subject to the
administrator’s discretion.

The plan administrator has broad discretion to
establish and change the terms of awards granted under our 2004
equity incentive plan, including the discretion to determine the
exercise price applicable to options, which may be less than the
fair market value of our common stock on the date of grant.
Notwithstanding that discretion, the exercise price of any
incentive stock options must not be less than the fair market
value of our common stock on the date of grant. Our 2004 equity
incentive plan also requires that non-statutory stock options
must be exercisable for not less than 85% of the fair market
value of our common stock on the date of grant, unless those
options are granted in a manner satisfying Section 424(a)
of the Code. The term of incentive stock options may not exceed
10 years from the date of grant. No employee may be granted
options to purchase more than 272,727 shares in any fiscal
year. In addition, the Code imposes certain limitations on the
value of shares that may be issued subject to incentive stock
options. Following termination of an optionholder’s service
relationship with PlanetOut, the optionholder may exercise
vested options for a period of time specified in the option
agreement relating to those options. Generally, if an
optionholder’s termination is due to death or disability,
the option will remain exercisable for 18 and 12 months
following termination, respectively. In most other cases, the
option will generally remain exercisable for three months
following termination, although the administrator may grant
options with a longer or shorter post-termination exercise
period or extend this period with respect to an outstanding
option. In no case may an option be exercised later than the
expiration of its term.

In addition to stock options, our 2004 equity
incentive plan permits us to issue stock purchase rights, stock
bonus awards, restricted stock awards, restricted stock units,
stock appreciation rights, phantom stock rights and other
similar equity-based awards. The administrator has broad
discretion to establish the terms and conditions of these awards
and may issue these awards without requiring the participant to
pay fair market value for the shares issued. These awards may be
subject to vesting requirements and may be subject to repurchase
by PlanetOut or other forfeiture conditions.

Our 2004 equity incentive plan provides that, in
the event of certain kinds of corporate transactions, including
the sale or other disposition of substantially all of our
assets, a sale or other disposition of a majority of our
outstanding securities or specified types of merger or
consolidation of PlanetOut with or into another company, then
the successor entity may either assume or substitute similar
awards for awards outstanding under our 2004 equity incentive
plan. If the successor refuses to assume, or provide substitutes
for, awards outstanding under our 2004 equity incentive plan,
then the vesting of all awards held by award recipients whose
service has not terminated as of the effective time of the
corporate transaction will accelerate in full, and those awards
will terminate if not exercised by a specific date prior to the
completion of the corporate transaction. The acceleration of
awards in the event of an acquisition or similar corporate
transaction may be viewed as an anti-takeover provision, which
may have the effect of discouraging a proposal to acquire or
otherwise obtain control of PlanetOut.

Our 2004 equity incentive plan will automatically
terminate on the tenth anniversary of its adoption by our board,
unless our board of directors terminates it prior to that date.
Our board of directors has broad discretion to amend our 2004
equity incentive plan, although such amendments may generally
not adversely affect the rights of participants holding
outstanding awards. We will seek stockholder approval of
amendments to our 2004 equity incentive plan to the extent
required by applicable law or Nasdaq listing requirements.

Our 2001 equity incentive plan was adopted by our
board of directors and approved by our stockholders in January
2002 and was last amended in April 2004. Our 2001 equity
incentive plan provided for the grant of incentive stock options
to our employees, and for the grant of nonstatutory stock
options, stock bonuses and rights to acquire restricted stock to
our employees, directors and consultants.

Our 2001 equity incentive plan as of
April 28, 2004 provides for a reserve of 42,272 shares
of our common stock and no shares of our series D preferred
stock available for grant. Effective upon completion of this
offering, our 2001 equity incentive plan will terminate, though
this termination will have no effect on the outstanding awards
made under the plan. No new awards will be granted under our
2001 equity incentive plan following the completion of this
offering. As of March 31, 2004, a total of 1,377,515
options were outstanding under our 2001 equity incentive plan,
on a pro forma basis, with a weighted-average exercise price of
$0.63 per share.

Our 2001 equity incentive plan provides that, in
the event of certain kinds of corporate transaction, including a
sale or other disposition of substantially all of our assets or
specified types of merger or consolidation of PlanetOut with or
into another company, then the successor entity may either
assume, or substitute similar awards for, awards outstanding
under our 2001 equity incentive plan. If the successor refuses
to assume or provide substitutes for awards outstanding under
our 2001 equity incentive plan, then the vesting of all awards
held by award recipients whose service has not terminated as of
the effective time of the corporate transaction will accelerate
in full, and those awards will terminate if not exercised at or
prior to the completion of the corporate transaction. The
acceleration of awards in the event of an acquisition or similar
corporate transaction may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of PlanetOut.

2004
Executive Officers and Directors Equity Incentive
Plan

In April 2004, we adopted our 2004 executive
officers and directors equity incentive plan, which provides for
the grant of incentive stock options to our executive officers
and nonstatutory stock options, stock bonuses and rights to
acquire restricted stock to our executive officers and
directors. Our 2004 executive officers and directors equity
incentive plan includes a reserve of 358,874 shares of our
common stock but is otherwise identical in all material respects
to our 2001 equity incentive plan as currently in effect. On
April 26, 2004, our board granted options under the plan
exercisable for an aggregate of 358,874 shares of our
common stock, at an exercise price of $9.02 per share. Effective
upon completion of this offering, our 2004 executive officers
and directors equity incentive plan will terminate, though this
termination will have no effect on the outstanding awards made
under the plan. No new awards will be granted under our 2004
executive officers and directors equity incentive plan following
the completion of this offering.

As with our 2001 equity incentive plan, our 2004
executive officers and directors equity incentive plan provides
that, in the event of some corporate transactions, including a
sale or other disposition of substantially all of our assets or
specified types of merger or consolidation of PlanetOut with or
into another company, the successor entity may either assume, or
substitute similar awards for, awards outstanding under our 2004
executive officers and directors equity incentive plan. If the
successor refuses to assume or provide substitutes for awards
outstanding under our 2004 executive officers and directors
equity incentive plan, then the vesting of all awards held by
award recipients whose service has not terminated as of the
effective time of the corporate transaction will accelerate in
full, and the awards will terminate if not exercised at or prior
to the completion of the corporate transaction. The acceleration
of awards in the event of an acquisition or similar corporate
event may be viewed as an anti-takeover provision, which may
have the effect of discouraging a proposal to acquire or
otherwise obtain control of PlanetOut.

In April 2001, in connection with our acquisition
of all of the outstanding capital stock of PlanetOut Corporation
and Online Partners.com, Inc. we assumed the PlanetOut 1996
equity incentive plan, the PlanetOut 1996 stock option plan and
the Online Partners 1997 stock plan. We have not granted any
options from any of these heritage plans since assuming them in
April 2001, and effective upon completion of this offering, our
heritage plans will terminate, though this termination will have
no effect on the outstanding awards made under the plans. No new
awards will be granted under our heritage plans following the
completion of this offering. As of March 31, 2004, a total
of 222,368 options were outstanding under all three of these
plans, with a weighted-average exercise price of $4.97 per
share.

Both the PlanetOut 1996 equity incentive plan and
the Online Partners 1997 stock plan provide for accelerated
vesting of awards in the event of certain kinds of corporate
transactions, including a sale or other disposition of
substantially all of our assets, specified types of merger or
consolidation of PlanetOut with or into another company or, with
respect to the PlanetOut 1996 equity incentive plan, the
acquisition of a majority of our combined voting power by any
person, entity or group, unless the acquiror in one of these
transactions agrees to assume or substitute similar awards.
Unexercised options granted under the PlanetOut 1996 stock
option plan will expire in the event of a change of control
unless they are assumed by the acquiror. The acceleration of
awards granted under our heritage plans in the event of an
acquisition or similar corporate transaction may be viewed as an
anti-takeover provision, which may have the effect of
discouraging a proposal to acquire or otherwise obtain control
of PlanetOut.

Performance
and Equity Participation Plan

In December 2001, our board of directors approved
our Performance and Equity Participation Plan, or PEP Plan. The
PEP Plan will automatically terminate upon completion of this
offering. The PEP Plan was designed to enable our employees to
participate in the acquisition or sale of PlanetOut after full
payment of the respective liquidation preferences of our
series E preferred stock, series D preferred stock and
any other securities on par or senior to our series D
preferred stock. If the PEP Plan were in effect at the time of a
change of control, those then-current employees with grants from
the PEP Plan would have shared in a bonus pool funded from a
portion of the acquisition proceeds.

We maintain a defined contribution pension plan
designed to be a tax-qualified retirement plan. The 401(k) plan
provides eligible employees with an opportunity to save for
retirement on a tax-advantaged basis. Eligible employees who
participate in the 401(k) plan are able to defer a percentage of
their eligible compensation on a pre-tax basis subject to
applicable Internal Revenue Code limits. Pre-tax contributions
are allocated to each participant’s individual account and
are then invested in selected investment alternatives according
to the participants’ directions. Employee elective
deferrals are 100% vested at all times. We are permitted to make
matching and profit sharing contributions, however, there is a
three-year vesting associated with these contributions for new
employees. The 401(k) plan is intended to qualify under
Sections 401(a) and 501(a) of the Internal Revenue Code. As
a tax-qualified retirement plan, contributions to the 401(k)
plan and earnings on those contributions are not taxable to the
employees until distributed from the 401(k) plan, and we deduct
all contributions when made.

Described below are certain transactions between
us and our executive officers, directors and the beneficial
owners of 5% or more of our voting securities and certain
persons affiliated with or related to these persons, including
family members. Beneficial ownership is determined in accordance
with the rules of the SEC and generally includes voting or
investment power with respect to such securities.

The shares of our series B preferred stock,
series C-1, C-2, C-3, C-4 and C-5 preferred stock,
series D preferred stock and series E preferred stock
outstanding immediately prior to this offering will
automatically convert into 1,254,659 shares,
4,793,608 shares, 3,185,145 shares and
811,743 shares of our common stock upon completion of this
offering.

From our inception in December 2000 through
December 31, 2003, we have issued shares of our preferred
stock, common stock and warrants to purchase our preferred stock
in private placement transactions as follows:

•

In April 2001, we acquired all of the outstanding
shares of capital stock of Online Partners and PlanetOut
Corporation in a merger transaction. In this transaction, each
share of Online Partners’ common stock and Series A,
C, D and E preferred stock was converted into approximately
2.437 shares of our common stock and of our
Series A-1, A-2, A-2 and B-3 preferred stock, respectively.
Additionally, each share of PlanetOut Corporation’s common
stock and Series A, B and C preferred stock was converted
into one share of our common stock and our Series B-1, B-2
and B-2 preferred stock, respectively. Warrants converted on the
same basis as the underlying securities for which they were
exercisable.

•

Between April and August 2001, we sold a total of
3,061,816 shares of our series D convertible preferred
stock at a purchase price of $4.07 per share.(1) All of our
accredited preferred stockholders were permitted to participate
pro rata in our series D financing, and each share of our
series A-1, A-2, B-1, B-2 or B-3 preferred stock held by
any stockholder that participated at a pro rata or higher level
in our series D financing was converted into approximately
2.941 shares of our series C-1, C-2, C-3, C-4 or C-5
preferred stock, respectively. All other shares of our
series A-1, A-2, B-1, B-2 and B-3 preferred stock were
converted into common stock at a 1:1 conversion ratio. As a
result of our series D financing, all outstanding shares of
our series A and B preferred stock were converted into
shares of our series C preferred stock or common stock.

•

In a series of closings in February, May and
September 2002, we sold a total of 811,743 shares of our
series E convertible preferred stock at a purchase price of
$4.07 per share.

•

In August 2003, we issued a total of 509,038
restricted shares of our newly designated series B
preferred stock to our employees at a purchase price of
$0.77 per share.

(1)

Prior to and in connection with our series D
financing, we issued convertible promissory notes in an
aggregate principal amount of $2.4 million and warrants
exercisable for up to 148,341 shares of our series D
preferred stock, at an exercise price of $4.07 per share.
The principal amount of these notes, together with approximately
$56,000 of accrued interest, was converted into a total of
607,125 shares of our series D preferred stock at the
initial closing of our series D financing.

Unless otherwise noted, shares held by affiliated
persons and entities have been added together for purposes of
this chart. See “Principal Stockholders” for a chart
of beneficial owners.

(2)

Amounts shown aggregate shares of series A-1
preferred stock and series A-2 preferred stock, and include
warrants exercisable for series A-1 or A-2 preferred stock.

(3)

Amounts shown aggregate shares of series B-1
preferred stock, B-2 preferred stock and series B-3
preferred stock, and include warrants exercisable for
series B-1, B-2 or B-3 preferred stock.

(4)

The shares of series C preferred stock shown
in this column were issued upon conversion of our
series A-1, A-2, B-1, B-2 and B-3 preferred stock in
connection with our series D financing. All of the
individuals and entities except Mr. Titterton who appear in
the table participated in our series D financing, and as a
result, each share of our series A-1, A-2, B-1, B-2 and B-3
preferred stock appearing in the table was converted into
approximately 2.941 shares of series C-1, C-2, C-3,
C-4 or C-5 preferred stock, respectively.

(5)

Amounts shown include warrants exercisable for
shares of series D preferred stock.

development of financial and business strategies.
H. William Jesse, Jr., one of our directors, was at
the time the President and a founder of HWJesse&Co.
Effective as of May 2003, the arrangement was terminated by
the mutual agreement of the parties and HWJesse&Co. no
longer provides consulting services to us.

Loans to Executive
Officers. In May 2001, we issued a
secured promissory note to Mark D. Elderkin, our president, for
approximately $603,000 to fund his purchase of series D
preferred stock. The principal and interest are due and payable
in May 2006. Interest accrues at a rate of 8.5% per annum
or the maximum rate permissible by law, whichever is less. The
note is full recourse as to all accrued interest and as to
$24,000 in principal amount and the remainder is non-recourse.
The loan is secured by the shares of preferred stock, common
stock, warrants and options owned by Mr. Elderkin. As of
March 31, 2004, the total principal and interest due under
the note was $745,000.

Indemnity Agreement.
In June 2001, Online Partners entered into an indemnity
agreement with Mark D. Elderkin, our President, pursuant to
which we agreed to indemnify Mr. Elderkin for certain costs
of defense and damages that might be awarded against him in a
lawsuit brought against us and him, among others, by a former
employee of Online Partners.

Indemnification
Insurance. Our bylaws require us to
indemnify our directors and executive officers to the fullest
extent permitted by Delaware law. We intend to enter into
indemnification agreements with all of our directors and
executive officers prior to the consummation of this offering
and hold directors’ and officers’ liability insurance.
In addition, our certificate of incorporation will limit the
personal liability of our board members for breaches by the
directors of their fiduciary duties. See
“Management — Limitation of Liability and
Indemnification.”

Amended and Restated Investors’ Rights
Agreement. We have entered into an
investor rights agreement with the holders of our preferred
stock, including the individuals and entities identified above,
which provides the holders of our preferred stock and certain
holders of warrants to purchase our capital stock with
registration rights and information rights. The information
rights will terminate upon completion of this offering. The
registration rights will survive this offering but will
terminate with respect to shares held by any stockholder holding
less than 1% of our common stock at such time as Rule 144
or another similar exemption under the Securities Act is
available for the sale of all such holders’ securities
within a three month period, but in any event by the fifth
anniversary of the closing of this offering. See
“Description of Capital Stock — Registration
Rights.”

Stockholders’
Agreement. In February 2002, we
entered into a stockholders’ agreement with the purchasers
of our series D and series E preferred stock
(including the parties shown as holding Series D and E
preferred stock above), and other current and former members of
our management team who hold shares of our common stock. This
agreement included rights of first refusal and co-sale with
respect to sales by the management holders, drag-along rights,
voting rights, participation rights and other rights that are
common to venture capital financings. This agreement will
terminate and be of no further force or effect upon completion
of this offering.

America
Online, Inc. Agreement In September
1999, PlanetOut Corporation entered into an Anchor Tenant
Agreement with America Online, Inc., a holder of more than 5% of
our common stock. Pursuant to the agreement, we built and
maintained a co-branded website and paid America Online, Inc. a
fee in exchange for key words and other promotions. In December
2000 and February 2002, we amended the agreement to reduce the
fee that we were to pay and the number of promotions America
Online, Inc. was to provide to us. This agreement terminated in
August 2003.

The table below sets forth information regarding
the beneficial ownership of our common stock as of
March 31, 2004, assuming the conversion of all outstanding
shares of our preferred stock into common stock upon completion
of this offering, and as adjusted to reflect the sale of shares
by us in this offering for:

•

each person or entity who is known by us to own
beneficially more than 5% of our outstanding shares of common
stock;

•

each executive officer named in the summary
compensation table;

•

each of our directors; and

•

all of our executive officers and directors as a
group.

Beneficial ownership is determined in accordance
with the rules of the SEC. Unless otherwise indicated below and
except to the extent authority is shared by spouses under
applicable law, to our knowledge, the persons named in the table
have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them. The number
of shares of common stock used to calculate the percentage
ownership of each listed person includes the shares of common
stock underlying options, warrants or other convertible
securities held by such person that are exercisable within
60 days of this offering. The percentage of beneficial
ownership after the offering is based on 11,772,075 shares
outstanding as of March 31, 2004
and shares
sold by us in this offering.

If the underwriters over-allotment option is
exercised in full, we would sell an
additional shares.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o PlanetOut Inc., 300 California
Street, San Francisco, CA94104.

of options, all of which are fully vested, held
by entities affiliated with Mayfield. Mr. Morgan is a
managing director of Mayfield and disclaims beneficial ownership
of shares held by Mayfield and its affiliates, except to the
extent of his pecuniary interest.

(3)

Include 48,609 shares held by
Mr. Elderkin’s life partner. Also includes
70,581 shares of our common stock issuable upon the
exercise of options, 69,750 of which are fully vested and 831 of
which are unvested.

(4)

America Online’s shareholdings include
177,382 shares of our common stock issuable upon exercise
of warrants. Ms. Magee, a member of our board, is a senior
vice president of Time Warner, the parent company of America
Online. Ms. Magee does not exercise any voting or
investment power over the shares held by America Online.

(5)

Includes 63,267 shares of our common stock
issuable upon exercise of a warrant. Mr. King is an advisor
of Petunia Resources Ltd. and he disclaims beneficial ownership
of shares held by Petunia Resources Ltd. and its affiliates,
except to the extent of his pecuniary interest.

(6)

Includes an aggregate of 627,161 shares held
by entities affiliated with Jesse.Hansen & Co. and
54,274 shares held in a retirement account for the benefit
of Mr. Jesse. Also includes 30,605 shares of our
common stock issuable upon the exercise of options held by
Mr. Jesse, all of which are fully vested, an aggregate of
17,306 shares of our common stock issuable upon the
exercise of warrants held by Mr. Jesse and an aggregate of
35,375 shares of our common stock issuable upon the
exercise of warrants held by entities affiliated with
Jesse.Hansen & Co. Mr. Jesse was a chairman of
Jesse.Hansen & Co. until 2004, and he disclaims
beneficial ownership in shares held by Jesse.Hansen &
Co. and its affiliates, except to the extent of his pecuniary
interest.

(7)

Includes 26,785 shares held by the Selvin
Family Fund LLC of which Mr. Selvin is the managing member,
836 shares held jointly with Mr. Selvin’s life
partner and 612,690 shares of our common stock issuable
upon the exercise of options, 406,777 of which are fully vested
and 205,913 of which are unvested. Also includes
59,483 shares subject to a right of repurchase in favor of
PlanetOut.

(8)

Includes 194,551 shares of our common stock
issuable upon the exercise of options, 136,197 of which are
fully vested and 58,354 of which are unvested. Also includes
44,612 shares subject to a right of repurchase in favor of
PlanetOut.

(9)

Includes 96,915 shares of our common stock
issuable upon the exercise of options, 34,547 of which are fully
vested and 62,368 of which are unvested. Also includes
27,617 shares subject to a right of repurchase in favor of
PlanetOut.

(10)

All shares held by entities affiliated with
Flatiron Partners. Also includes 6,645 shares of our common
stock issuable upon exercise of options, all of which are fully
vested, and 2,520 shares of our common stock issuable upon
exercise of warrants held by entities affiliated with Flatiron
Partners. Mr. Colonna is a partner of Flatiron Partners,
and he disclaims beneficial ownership of shares held by Flatiron
Partners and its affiliates, except to the extent of his
pecuniary interest.

(11)

Includes all of the shares referenced in notes
(2), (3) and (5) through (10) above.

Upon completion of this offering, our authorized
capital stock will consist of 100,000,000 shares of common
stock and 5,000,000 shares of preferred stock. The relative
rights and preferences of our preferred stock may be established
from time to time by our board of directors. The following
summary is qualified in its entirety by reference to our
certificate of incorporation and bylaws, copies of which are
filed as exhibits to the registration statement of which this
prospectus is a part.

Common Stock

As of March 31, 2004, there were
11,772,075 shares of our common stock outstanding, and we
had approximately 380 stockholders of record. As of
March 31, 2004, there were also 1,719,574 shares of
common stock subject to outstanding options under our stock
option plans and 377,818 shares subject to outstanding
warrants. Holders of our common stock are entitled to one vote
per share on all matters to be voted upon by our stockholders.
Subject to contractual restrictions, limitations under Delaware
law and preferences that may be applicable to any outstanding
shares of preferred stock, holders of common stock are entitled
to receive ratably such dividends or other distributions, if
any, as may be declared by our board of directors out of funds
legally available therefor. In the event of our liquidation,
dissolution or winding up, the holders of our common stock are
entitled to share ratably in all assets remaining after payment
of liabilities, subject to the liquidation preference of any
outstanding preferred stock. Our common stock has no preemptive,
conversion or other rights to subscribe for additional
securities of PlanetOut. There are no redemption or sinking fund
provisions applicable to our common stock. All outstanding
shares of our common stock are, and all shares of our common
stock to be outstanding upon completion of the offering will be,
validly issued, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are
subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that we may
designate and issue in the future.

Preferred Stock

Upon the closing of this offering, all
outstanding shares of preferred stock will automatically convert
into 10,045,155 shares of common stock. Our board of
directors will have the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred
stock in one or more series and to designate the rights,
preferences, privileges and restrictions of each such series.
The issuance of preferred stock could have the effect of
restricting dividends on the common stock, diluting the voting
power of the common stock, impairing the liquidation rights of
the common stock or delaying or preventing our change in control
without further action by the stockholders. At present, we have
no plans to issue any shares of preferred stock.

Warrants

At March 31, 2004, warrants to purchase an
aggregate of 377,818 shares of our common stock were
outstanding. These warrants have a weighted average exercise
price of $13.02 per share, and all of these warrants will
expire on or before June 1, 2006.

Registration Rights

Under our investors’ rights agreement, the
holders of 8,790,496 shares of our common stock are
entitled to rights with respect to the registration of their
shares under the Securities Act, including demand, piggyback and
Form S-3 registration rights.

Demand Registration Rights

The holders of at least a majority of our
outstanding shares of common stock with demand registration
rights have the right to require that we register all or a
portion of their shares. We are only obligated to effect three
registrations in response to these demand registration rights.
We generally must

pay all expenses, except for underwriters’
discounts and commissions, incurred in connection with the
exercise of these demand registration rights.

Piggyback Registration Rights

If we register any securities for public sale,
the stockholders with piggyback registration rights have the
right to include their shares in the registration, subject to
specified exceptions. The underwriters of any underwritten
offering have the right to limit the number of shares registered
by these holders due to marketing reasons, but these holders may
not be reduced to less than 20% of the shares in the
registration statement, except in the initial public offering of
our stock. We generally must pay all expenses, except for
underwriters’ discounts and commissions, incurred in
connection with the exercise of these piggyback registration
rights.

Form S-3 Registration Rights

If we are eligible to file a registration
statement on Form S-3, any holder of shares of our common
stock having Form S-3 registration rights can request that
we register their shares, provided that at least
147,728 shares of common stock are offered in the
registration and that we are not required to effect more than
one such registration every six months. We generally must pay
all expenses, except for underwriters’ discounts and
commissions, incurred in connection with the exercise of these
Form S-3 registration rights.

Anti-Takeover Effects

Provisions of Delaware law, our restated
certificate of incorporation and bylaws could have the effect of
delaying or preventing a third party from acquiring us, even if
the acquisition would benefit our stockholders. These provisions
are intended to enhance the likelihood of continuity and
stability in the composition of our board of directors and in
the policies formulated by the board of directors and to
discourage types of transactions that may involve an actual or
threatened change of control of PlanetOut. These provisions are
designed to reduce our vulnerability to an unsolicited proposal
for a takeover that does not contemplate the acquisition of all
of our outstanding shares, or an unsolicited proposal for the
restructuring or sale of all or part of PlanetOut.

Delaware Anti-Takeover Statute

Upon completion of this offering, we will be
subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. Subject to
exceptions, the statute prohibits a publicly-held Delaware
corporation from engaging in a “business combination”
with an “interested stockholder” for a period of three
years after the date of the transaction in which the person
became an interested stockholder, unless:

•

prior to such date the board of directors of the
corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder;

•

upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of
shares outstanding, those shares owned (1) by persons who
are directors and also officers and (2) by employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or

on or after such date, the business combination
is approved by the board of directors and authorized at an
annual or special meeting of stockholders and not by written
consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested
stockholder.

For purposes of Section 203, a
“business combination” includes a merger, asset sale
or other transaction resulting in a financial benefit to the
interested stockholder, with an “interested
stockholder” being defined as a person who, together with
affiliates and associates, owns or, within three years prior to
the date of determination whether the person is an
“interested stockholder,” did own, 15% or more of the
corporation’s voting stock.

In addition, upon consummation of this offering,
provisions of our restated certificate of incorporation and
bylaws may have an anti-takeover effect. These provisions may
delay, defer or prevent a tender offer or takeover attempt of
PlanetOut that a stockholder might consider in his or her best
interest, including those attempts that might result in a
premium over the market price for the shares held by our
stockholders. The following summarizes these provisions.

Classified Board of Directors; Removal of
Directors

Our board of directors will be divided into three
classes of directors of directors, as nearly equal in size as is
practicable, serving staggered three-year terms. As a result,
approximately one-third of the board of directors will be
elected each year. In addition, only our board of directors is
authorized to fill vacant directorships or increase the size our
board. Directors may only be removed for cause by holders of a
majority of the shares entitled to vote at an election of
directors.

Stockholder Action; Special Meeting of
Stockholders

Our restated certificate of incorporation
eliminates the ability of stockholders to act by written
consent. Our bylaws provide that special meetings of our
stockholders may be called only by our Chairman, Chief Executive
Officer or a majority of our board of directors.

Our bylaws provide that stockholders seeking to
bring business before an annual meeting of stockholders, or to
nominate candidates for election at an annual meeting of
stockholders, must provide us with timely written notice of
their proposal. To be timely, a stockholder’s notice must
be delivered to or mailed and received at our principal
executive offices no later than the close of business on the
90th day or earlier than the 120th day before the first
anniversary of the preceding year’s annual meeting. If,
however, no meeting was held in the prior year or the date of
the annual meeting has been changed by more than 30 days
from the date contemplated in the notice of annual meeting,
notice by the stockholder in order to be timely must be received
no later than the close of business on the tenth day following
the day on which the date of the annual meeting is publicly
announced. Our bylaws also specify requirements as to the form
and content of a stockholder’s notice. These provisions may
preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors
at an annual meeting of stockholders.

Authorized But Unissued Shares

Our authorized but unissued shares of common
stock and preferred stock are available for our board to issue
without stockholder approval. We may use these additional shares
for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions
and employee benefit plans. The existence of our authorized but
unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of
PlanetOut by means of a proxy context, tender offer, merger or
other transaction.

The Delaware General Corporation Law provides
generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a
corporation’s certificate of incorporation or bylaws,
unless a corporation’s certificate of incorporation or
bylaws, as the case may be, requires a greater percentage. Our
restated certificate of incorporation will include supermajority
vote provisions that require the affirmative vote of the holders
of at least two-thirds of the combined voting power of all of
the then-outstanding shares of our voting capital stock in order
to amend our bylaws and the anti-takeover-related sections of
our certificate of incorporation.

Transfer Agent and Registrar

The transfer agent and registrar for our common
stock is Wells Fargo Bank, N.A. The transfer agent’s
address is 161 North Concord Exchange, South St. Paul, Minnesota55075 and its telephone number is (800) 767-3330.

Nasdaq National Market Listing

We have applied to have our common stock listed
on the Nasdaq National Market for quotation under the symbol
“LGBT.”

Before this offering, there has been no public
market for our common stock. If our stockholders sell
substantial amounts of our common stock in the public market
following this offering, the prevailing market price of our
common stock could decline. While substantially all currently
outstanding shares are subject to contractual and legal
restrictions on resale for 180 days after the date of this
prospectus, as described below, sales of substantial amounts of
our common stock in the public market after these restrictions
lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.

Upon the closing of this offering, we will have
outstanding an aggregate
of shares
of our common stock, based upon the number of shares outstanding
at ,
2004 and assuming automatic conversion of all of our preferred
stock, no exercise of the underwriters’ over-allotment
option, no exercise of outstanding options and warrants and no
grant of additional options or warrants. All shares sold in this
offering will be freely tradable without restriction or the
requirement of further registration under the Securities Act,
unless they are purchased by our “affiliates” as that
term is defined in Rule 144 under the Securities Act. The
remaining shares are “restricted shares,” as that term
is defined in Rule 144 under the Securities Act, and will
be eligible for sale in the public market as follows:

Lock-up Agreements.
All of our directors, officers, option holders, warrant holders
and holders of all
but shares
of our outstanding common stock are subject to lock-up
agreements under which they have agreed not to transfer or
dispose of, directly or indirectly, any shares of our common
stock or any securities convertible into or exercisable or
exchangeable for shares of our common stock for 180 days
after the date of this prospectus. UBS Securities LLC may in its
sole discretion, at any time and without prior notice or
announcement, release all or any portion of shares subject to
the lock-up agreements.

Rule 144. In
general, under Rule 144 as currently in effect, beginning
90 days after the date of this prospectus, a person who has
beneficially owned shares of our common stock for at least one
year, including the holding period of prior owners other than
affiliates, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of (a) 1%
of the number of shares of our common stock then outstanding,
which will equal
approximately shares
immediately after the offering, or (b) the average weekly
trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice
on Form 144 with respect to that sale. Sales under
Rule 144 are also subject to manner-of-sale provisions,
notice requirements and the availability of current public
information of our common stock will be eligible to be sold
pursuant to rule 144, subject to the volume restrictions
described in the previous sentence, beginning 90 days after
the date of this prospectus.

Rule 144(k).
Under Rule 144(k), a person who is not deemed to have been
one of our affiliates at any time during the three months
preceding a sale and who has beneficially owned shares for at
least two years, including the holding period of certain prior
owners other than affiliates, is entitled to sell those shares
without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144. Based
upon the number of shares outstanding
at ,
2004, an aggregate of
approximately shares
of our common stock will be eligible to be sold pursuant to rule
144(k) after the date of this prospectus. However, all
but of
such shares are subject to the lock-up agreements described
above and will only become eligible for sale upon the expiration
or termination of such agreements.

Rule 701. In
general, under Rule 701 of the Securities Act as currently
in effect, each of our directors, officers, employees,
consultants or advisors who purchased shares from us before the
date of this prospectus in connection with a compensatory stock
plan or other written compensatory agreement is eligible to
resell such shares 90 days after the date of this
prospectus in reliance on Rule 144, but without compliance
with restrictions, including the holding period, contained in
Rule 144. Based upon the number of shares outstanding as
of ,
2004, an aggregate of
approximately shares
of our common stock which are outstanding as
of ,
2004 and
approximately shares
of our common stock that may be acquired upon exercise of
options outstanding as
of ,
2004, will be

eligible to be sold pursuant to Rule 701
beginning 90 days after the date of this prospectus,
subject to the vesting provisions that may be contained in
individual option agreements. However, all of such shares are
subject to the lock-up agreements described above and will only
become eligible for sale upon the expiration or termination of
such agreements.

Registration Rights.
After this offering, holders of approximately
8,790,496 shares of our common stock are entitled to have
their shares registered by us under the Securities Act. See
“Description of Capital Stock — Registration
Rights.” After any registration of these shares, such
shares will be freely tradable, without restriction under the
Securities Act.

Stock Plans. As
of ,
2004, options to
purchase shares
of our common stock were outstanding under our equity incentive
plans. After this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering
shares of common stock reserved for issuance under our 2004
equity incentive plan, our 2004 executive officers and directors
equity incentive plan, our 2001 equity incentive plan, the
PlanetOut 1996 equity incentive plan, the PlanetOut 1996 stock
option plan and the Online Partners 1997 stock plan. At that
point, subject to the satisfaction of applicable exercisability
periods, Rule 144 volume limitations applicable to
affiliates and the lock-up agreements with the underwriters
referred to above, shares of common stock to be issued upon
exercise of outstanding options granted pursuant to our stock
incentive plans will be available for immediate resale in the
public market.

UBS Securities LLC and WR
Hambrecht + Co, LLC are acting as representatives of
the underwriters. Subject to the terms and conditions set forth
in a purchase agreement among us and the underwriters, we have
agreed to sell to the underwriters, and the underwriters
severally have agreed to purchase from us, the number of shares
listed opposite its name below.

Number of

Underwriters

Shares

UBS Securities LLC

WR Hambrecht + Co, LLC

Total

Subject to the terms and conditions set forth in
the purchase agreement, the underwriters have agreed to purchase
all of the shares sold under the purchase agreement if any of
these shares are purchased. If an underwriter defaults, the
purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase
agreement may be terminated.

We have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the underwriters
may be required to make in respect of those liabilities.

The underwriters are offering the shares, subject
to prior sale, when, as and if issued to and accepted by them,
subject to approval of legal matters by their counsel, including
the validity of the shares, and other conditions contained in
the purchase agreement, such as the receipt by the underwriters
of officer’s certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.

Commissions and Discounts

The representatives have advised us that they
propose initially to offer the shares to the public at the
initial public offering price set forth on the cover page of
this prospectus and to dealers at that price less a concession
not in excess of
$ per
share. The underwriters may allow, and the dealers may reallow,
a discount not in excess of
$ per
share to other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.

The following table shows the public offering
price, underwriting discount and proceeds before expenses to us.
The information assumes either no exercise or full exercise by
the underwriters of their over-allotment options.

Per Share

Without Option

With Option

Public offering price

$

$

$

Underwriting discount

$

$

$

Proceeds, before expenses, to PlanetOut Inc.

$

$

$

The expenses of the offering, not including the
underwriting discount, are estimated at
$ and
are payable by us.

Over-allotment Option

We have granted options to the underwriters to
purchase up
to additional
shares at the public offering price less the underwriting
discount. The underwriters may exercise these options for
30 days from the date of this prospectus solely to cover
any over-allotments. If the underwriters exercise these options,
each will be obligated, subject to conditions contained in the
purchase agreement, to purchase a number of additional shares
proportionate to that underwriter’s initial amount
reflected in the above table.

At our request, the underwriters have reserved
for sale, at the initial public offering price, up to 5% of
the shares offered by this prospectus for sale to certain of our
business associates, employees and other persons. If these
persons purchase reserved shares, this will reduce the number of
shares available for sale to the general public. Any reserved
shares that are not orally confirmed for purchase within one day
of the pricing of this offering will be offered by the
underwriters to the general public on the same terms as the
other shares offered by this prospectus.

No Sales of Similar Securities

We, our executive officers and directors and
certain of our existing stockholders have agreed, with
exceptions, not to sell or transfer any common stock for
180 days after the date of this prospectus without first
obtaining the written consent of UBS Securities LLC.
Specifically, we and these other individuals have agreed not to
directly or indirectly:

request or demand that we file a registration
statement related to the common stock, or

•

enter into any swap or other agreement that
transfers, in whole or in part, the economic consequence of
ownership of any common stock whether any such swap or
transaction is to be settled by delivery of shares or other
securities, in cash or otherwise.

This lock-up provision applies to common stock
and to securities convertible into or exercisable for or
repayable with common stock. It also applies to common stock
owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later
acquires the power of disposition.

Quotation on the Nasdaq National
Market

We expect the shares to be approved for quotation
on the Nasdaq National Market subject to notice of issuance,
under the symbol “LGBT.”

Before this offering, there has been no public
market for our common stock. The public offering price will be
determined through negotiations among us and the
representatives. In addition to prevailing market conditions,
the factors to be considered in determining the initial public
offering price are:

•

the valuation multiples of publicly traded
companies that the representatives believe to be comparable to
us,

•

our financial information,

•

the history of, and the prospects for, our
company and the industry in which we operate,

•

an assessment of our management, our past and
present operations, and the prospects for, and timing of, our
future revenue,

•

the present state of our development, and

•

the above factors in relation to market values
and various valuation measures of other companies engaged in
activities similar to ours.

An active trading market for the shares may not
develop. It is also possible that after the offering the shares
will not trade in the public market at or above the initial
public offering price.

The underwriters do not expect to sell more than
5% of the shares in the aggregate being offered in this offering
to accounts over which they exercise discretionary authority.

Price Stabilization, Short Positions and
Penalty Bids

Until the distribution of the shares is
completed, SEC rules may limit the underwriters and selling
group members from bidding for and purchasing our common stock.
However, the representatives may engage in transactions that
stabilize the price of the common stock, such as bids or
purchases to peg, fix or maintain that price.

If the underwriters create a short position in
the common stock in connection with the offering, i.e., if they
sell more shares than are listed on the cover of this
prospectus, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may
also elect to reduce any short position by exercising all or
part of the over-allotment option described above. Purchases of
the common stock to stabilize its price or to reduce a short
position may cause the price of the common stock to be higher
than it might be in the absence of such purchases.

The representatives may also impose a penalty bid
on underwriters and selling group members. This means that if
the representatives purchase shares in the open market to reduce
the underwriter’s short position or to stabilize the price
of such shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who
sold those shares. The imposition of a penalty bid may also
affect the price of the shares in that it discourages resales of
those shares.

Neither we nor any of the underwriters make any
representation or prediction as to the direction or magnitude of
any effect that the transactions described above may have on the
price of our common stock. In addition, neither we nor any of
the representatives makes any representation that the
representatives will engage in these transactions or that these
transactions, once commenced, will not be discontinued without
notice.

LEGAL MATTERS

The validity of the common stock offered will be
passed upon for us by Howard Rice Nemerovski Canady
Falk & Rabkin, A Professional Corporation,
San Francisco, California. O’Melveny &
Myers LLP, New York, New York, is acting as
counsel for the underwriters in connection with selected legal
matters relating to the shares of common stock offered by this
prospectus.

EXPERTS

The financial statements as of December 31,2002 and 2003 and for each of the three years in the period
ended December 31, 2003 included in this prospectus have
been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on
authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION
ABOUT PLANETOUT

We have filed with the SEC a registration
statement on Form S-1, including exhibits and schedules,
under the Securities Act with respect to the shares of common
stock to be sold in this offering. This prospectus does not
contain all of the information included in the registration
statement. For further information about us and the shares of
common stock to be sold in this offering, please refer to this
registration statement. Complete exhibits have been filed with
our registration statement on Form S-1.

You may read and copy any contract, agreement or
other document that we have filed as an exhibit to our
registration statement or any other portion of our registration
statement or any other

information from our filings at the SEC’s
public reference room at 450 Fifth Street, N.W.,
Washington D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference room. Our filings with
the SEC, including our registration statement, are also
available to you on the SEC’s website, http://www.sec.gov.

As a result of this offering, we will become
subject to the information and periodic reporting requirements
of the Securities Exchange Act of 1934, and will accordingly
file periodic reports, proxy statements and other information
with the SEC. This information will be available for inspection
and copying at the public reference room and website of the SEC
referred to above. We intend to make our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act available free of charge at our website at
www.planetoutinc.com as soon as reasonably practicable
after we file such material with, or furnish it to, the SEC. The
reference to our website does not constitute an incorporation by
reference of the information contained on our website.

You may read and copy any reports, statements or
other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by
writing to the SEC.

In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, of redeemable convertible preferred stock and
stockholders’ deficit and of cash flows present fairly, in
all material respects, the financial position of PlanetOut Inc.
and its subsidiaries, at December 31, 2002 and 2003, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Company’s management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards
generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluation of
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

As discussed in Notes 2 and 5 to the
consolidated financial statements, effective January 1,2002, the Company changed its method of accounting for goodwill
in accordance with Statement of Financial Accounting Standards
No. 142, “Goodwill and Other Intangible Assets.”

PlanetOut Inc. (formerly PlanetOut Partners, Inc.
and Online Partners.com, Inc.) (the “Company”) is an
online media company serving the lesbian, gay, bisexual and
transgendered community. Through its Gay.com and PlanetOut.com
websites, the Company offers membership based services and
features. The Company generates revenue through subscription
fees for premium membership services on Gay.com and
PlanetOut.com, as well as advertising sales and sales of
products and services through its e-commerce site,
Kleptomaniac.com, and travel website, OutandAbout.com.

Note 2 —

Summary of Significant Accounting
Policies

Basis of presentation

The Company has completed several rounds of
private equity financing with its last round totaling
$3.3 million, which was completed between February and
September 2002. The Company incurred losses from operations
since its inception and has an accumulated deficit of
$36.8 million as of December 31, 2003. The Company
experienced operating losses in 2003 but had positive cash flows
from operating activities.

The Company’s expectations as to its cash
flows, and as to future cash balances, are subject to a number
of assumptions, including assumptions regarding anticipated
revenues and customer purchasing and payment patterns, many of
which are beyond the Company’s control. If revenue do not
match projections and if losses exceed the Company’s
expectations, the Company will need to raise additional capital
or implement cost saving initiatives. However, there can be no
assurance that the Company will be able to obtain additional
debt or equity financing on terms acceptable to the Company or
at all. The failure of the Company to generate sufficient
revenue or to obtain additional funding on acceptable terms when
needed could have a material adverse effect on the
Company’s ability to achieve its intended business
objectives.

Principles of consolidation

The accompanying consolidated financial
statements include the accounts of the Company and its wholly
owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting periods.
Significant estimates and assumptions made by management include
the assessment of collectibility of accounts receivable, the
determination of the allowance of doubtful accounts, the
determination of the fair market value of its preferred and
common stock, the valuation and useful life of its capitalized
software and long-lived assets and the valuation of deferred tax
asset balances. Actual results could differ from those estimates.

Cash equivalents

The Company considers all highly liquid
investments purchased with original or remaining maturities of
three months or less to be cash equivalents. Interest is accrued
as earned. As of December 31, 2002 and 2003, cash and cash
equivalents included $1,514,000 and $1,573,000, respectively, of
money market funds and commercial paper, the fair market value
of which approximates costs.

Carrying amounts of certain of the Company’s
financial instruments including cash and cash equivalents,
accounts receivable and accounts payable approximate fair value
due to their short maturities.

Concentration of credit risk

Financial instruments that potentially subject
the Company to concentration of credit risk consist principally
of cash, cash equivalents and accounts receivable. Cash and cash
equivalents are maintained by financial institutions in the
United States, Europe and Argentina. Deposits in the United
States may exceed federally insured limits. Management believes
that the financial institutions that hold the Company’s
investments are financially credit worthy and, accordingly,
minimal credit risk exists with respect to those investments.

The Company’s accounts receivable are
derived primarily from advertising customers. The Company
performs ongoing credit evaluations of its customers, does not
require collateral and maintains allowances for potential credit
losses when deemed necessary. To date, such losses have been
within management’s expectations. In 2001, 2002 and 2003,
no single customer accounted for more than 10% of the
Company’s revenue.

Foreign currency translation

The functional currency for the consolidated
foreign subsidiaries is their applicable local currency.
Accordingly, the translation from their applicable local
currency to U.S. Dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using an average
exchange rate during the period. The resulting translation
adjustments are recorded as a component of other comprehensive
income. Foreign currency translation gain and losses are
reflected in the equity section of the Company’s
consolidated balance sheets as accumulated other comprehensive
income (loss). Gains or losses resulting from foreign currency
transactions are included in other income (expenses) in the
consolidated statement of operations and to date have not been
significant.

Inventory

Inventory, which consists of finished goods held
for sale, is recorded at the lower of cost (determined on a
weighted average cost method) or market and the balance as of
December 31, 2002 and 2003 of $29,000 and $28,000,
respectively, is included in other current assets.

Investments

Investments in entities over which the Company
has significant influence, typically those entities that are 20
to 50 percent owned by the Company, are accounted for using
the equity method of accounting, whereby the investment is
carried at cost of acquisition, plus the Company’s equity
in undistributed earnings or losses since acquisition. The
Company monitors such investments for impairment by considering
current factors including economic environment, market
conditions and operational performance and other specific
factors relating to the business underlying the investment, and
records reductions in carrying values when necessary. The fair
value for privately held securities is estimated using the best
available information as of the evaluation date, including the
quoted market prices of comparable public companies, recent
financing rounds of the investee and other investee specific
information.

Property and equipment

Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is
calculated using the straight line method over the estimated
useful lives of the related assets ranging from 3 to
5 years. Leasehold improvements are amortized over the term
of the lease ranging

from 2 to 5 years. Maintenance and repairs
are charged to expense as incurred. When assets are retired or
otherwise disposed of, the cost and accumulated depreciation and
amortization are removed from the accounts and any resulting
gain or loss is reflected in the consolidated statement of
operations in the period realized.

The Company capitalizes internally developed
software costs in accordance with the Statement of
Position 98-1, “Accounting for Costs of Computer
Software Developed or Obtained for Internal Use”
(“SOP 98-1”) and Emerging Issues Task Force
Abstract No. 00-02, “Accounting for Web Site
Development Costs” (“EITF 00-02”).
Capitalized costs are amortized on a straight-line basis over
the estimated useful life of the software, generally three
years, once it is available for its intended use. During 2001,
2002 and 2003, the Company capitalized costs of $231,000,
$333,000 and $855,000, respectively, and recorded $40,000,
$119,000 and $273,000 of amortization expense, respectively.

Goodwill

Effective January 1, 2002, the Company
adopted Statement of Financial Accounting Standards No. 142
(“SFAS 142”), “Goodwill and Other Intangible
Assets.” In accordance with SFAS 142, the Company
ceased amortizing goodwill, reclassified balance for assembled
workforce to goodwill and performed a transitional test of its
goodwill as of January 1, 2002. SFAS 142 requires that
goodwill be tested for impairment at the reporting unit level
(operating segment or one level below an operating segment) on
an annual basis and between annual tests in certain
circumstances. The performance of the test involves a two-step
process. The first step of the impairment test involves
comparing the fair value of the Company’s reporting units
with the reporting unit’s carrying amount, including
goodwill. The Company generally determines the fair value of its
reporting units using the expected present value of future cash
flows, giving consideration to the market comparable approach.
If the carrying amount of the Company’s reporting units
exceeds the reporting unit’s fair value, the Company
performs the second step of the goodwill impairment test to
determine the amount of impairment loss. The second step of the
goodwill impairment test involves comparing the implied fair
value of the Company’s reporting unit’s goodwill with
the carrying amount of that goodwill.

Long-lived assets and other intangible
assets

Other intangible assets are carried at cost less
accumulated amortization. The Company amortizes other intangible
assets on a straight line basis over their estimated useful
lives, generally one to three years. Long-lived assets to be
held and used and other intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable.
Factors which are considered important that could trigger an
impairment include, but are not limited to, the following:

Significant changes in the manner of the
Company’s use of the acquired assets or the strategy for
the overall Company’s business;

•

Significant negative industry or economic trends;
and

•

A current expectation that, more likely than not,
a long-lived asset will be sold, modified or otherwise disposed
of significantly before the end of its previously estimated
useful life.

Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. Measurement of
any impairment loss for long-lived

assets and certain identifiable intangible assets
that management expects to hold and use is based on the amount
the carrying value exceeds the fair value of the asset.

Restricted cash

As of December 31, 2002 and 2003, the
Company had $60,000 and $30,000, respectively, of cash
restricted from withdrawal and held by a bank as certificates of
deposit and as collateral for the online processing of credit
cards. Restricted cash is recorded under other assets in the
accompanying consolidated balance sheets.

Revenue recognition

The Company’s revenue is derived principally
from the sale of premium subscription services, banner and
sponsorship advertisements and transactions services. Premium
subscription services are generally for a period of one month to
one year. Premium subscription services are generally paid for
upfront by credit card, subject to cancellations by subscribers
or charge backs from transaction processors. Revenue, net of
estimated cancellations and charge backs, is recognized ratably
over the service term. To date, cancellations and charge backs
have not been significant and within management’s
expectations.

To date, the duration of the Company’s
banner advertising commitments has ranged from one week to one
year. Sponsorship advertising contracts have terms ranging from
three months to two years and also involve more integration with
the Company’s services, such as the placement of buttons
that provide users with direct links to the advertiser’s
website. Advertising revenue on both banner and sponsorship
contracts are recognized ratably over the term of the contract,
provided that no significant Company obligations remain at the
end of a period and collection of the resulting receivables is
reasonably assured at the lesser of the ratio of impressions
delivered over the total number of undertaken impressions or the
straight line basis. Company obligations typically include
undertakings to deliver a minimum number of
“impressions,” or times that an advertisement appears
in pages viewed by users of the Company’s online
properties. To the extent that these minimums are not met, the
Company defers recognition of the corresponding revenue until
the minimums are achieved.

Transaction service revenue generated from sale
of products held in inventory is recognized when the product is
shipped net of estimated returns. The Company also earns
commissions for facilitating the sale of third party products
and services which are recognized when earned based on reports
provided by third party vendors or upon cash receipt if no
reports are provided.

Advertising

Costs related to advertising and promotion are
charged to sales and marketing expense as incurred. Advertising
costs in 2001, 2002 and 2003 were $103,000, $144,000 and
$1,067,000, respectively.

Stock-based compensation

The Company accounts for stock-based employee
compensation arrangements in accordance with provisions of
Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees,” (“APB
No. 25”), and related interpretations. The Company
follows the disclosure provisions of Statement of Financial
Accounting Standards No. 123, “Accounting for
Stock-Based Compensation” (“SFAS No. 123”),
and related interpretations. Under APB No. 25, compensation
expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company’s stock and
the exercise price. Stock-based compensation determined under
either APB No. 25 or SFAS No. 123 is recognized using
the multiple option method prescribed by the Financial
Accounting Standards Board Interpretation No. 28,
“Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Awards Plans” (“FIN
No. 28”), over the option’s vesting period, which
generally is two to four years.

The Company accounts for equity instruments
issued to nonemployees in accordance with
SFAS No. 123, Emerging Task Force Issue
No. 96-18, Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services”
(“EITF 96-18”) and FIN No. 28. Accordingly,
as these equity instruments vest, the Company will be required
to remeasure the fair value of the equity instruments at each
reporting period prior to vesting and then finally at the
vesting date of the equity instruments.

For the purposes of pro forma disclosures, the
estimated fair value of the options granted under the
Company’s stock option plans is amortized to expense over
the vesting period of the respective options, generally two to
four years.

The pro forma disclosures of the difference
between compensation cost included in the net loss and the
related cost measured by the fair value method as required by
SFAS 123, as amended, are presented as follows (in thousands):

The Company calculated the fair value of each
common stock option grant on the date of grant using the minimum
value method with the following assumptions: dividend yield of
0% and 10% for common stock and preferred stock, respectively;
weighted average option term of five years and thirty months for
common stock and preferred stock, respectively; risk free
interest rate of 4.64% to 6.82%, 2.76% to 3.62% and 2.15% to
3.36% in 2001, 2002 and 2003, respectively. The weighted fair
value of common stock options granted was $0.000, $0.007 and
$0.002 in 2001, 2002 and 2003. The weighted fair value of
preferred stock options granted was $0.19 in 2002.

Income taxes

The Company accounts for income taxes in
accordance with the liability method. Under this method,
deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of
assets and liabilities and net operating loss and credit
carryforwards using enacted tax rates in effect for the year in
which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.

Comprehensive loss

Other comprehensive loss includes all changes in
equity (net assets) during a period from non-owner sources and
is reported in the consolidated statement of changes in
stockholders’ equity (deficit). To date, other
comprehensive loss consists of changes in accumulated foreign
currency translation adjustments during the period.

The Company has one reporting segment. During
2001, 2002 and 2003, $864,000, $1,148,000 and $939,000,
respectively, of the Company’s revenue was derived from its
operations based in Europe and Argentina. As of
December 31, 2001, 2002 and 2003, $146,000, $61,000 and
$15,000, respectively, of the Company’s long-lived assets
were held in Europe and Argentina.

Pro forma stockholders’ equity
(unaudited)

Immediately prior to the completion of the
offering contemplated by this prospectus, all outstanding
redeemable convertible preferred stock will automatically
convert into an aggregate of 110,524,572 shares of common
stock. Unaudited pro forma stockholders’ equity, as
adjusted for the assumed conversion of the redeemable
convertible preferred stock, is set forth on the balance sheet.

Net income (loss) per share

Basic net income (loss) per share is computed
using the weighted average number of shares outstanding. Diluted
net income (loss) per share is computed using the weighted
average number of common and potential common shares
outstanding. Potential common shares consist of the incremental
number of common shares issuable upon conversion of convertible
preferred stock (using the if-converted method) and common
shares issuable upon the exercise of stock options and warrants
(using the treasury stock method). Potential common shares are
excluded from the computation if their effect is anti-dilutive.

The following table sets forth the computation of
basic and diluted net loss attributable to common stockholders
(in thousand, except per share amounts):

Pro forma net income (loss) per share in 2003 is
computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic
conversion of the Company’s redeemable convertible
preferred stock into shares of common stock effective upon the
closing of the

offering, as if such conversion occurred on the
later of January 1, 2003, the date of original issuance or
the date the repurchase right lapses. The resulting pro forma
adjustments includes an increase in the weighted average shares
used to compute basic and diluted net income (loss) per share of
97,681,000 shares in 2003.

Reclassifications

Certain reclassifications have been made in the
prior consolidated financial statements to conform to the
current year presentation. The reclassifications did not change
the previously reported net loss of the Company.

Recent accounting
pronouncements

In June 2002, the FASB issued SFAS No. 146,
“Accounting for Exit or Disposal Activities.” SFAS
No. 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including
restructuring activities that are currently accounted for under
EITF No. 94-3, “Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring).” The scope of SFAS No. 146 also
includes costs related to terminating a contract that is not a
capital lease and termination benefits that involuntarily
terminated employees receive under the terms of a one-time
benefit arrangement that is not an ongoing benefit arrangement
or an individual deferred compensation contract. SFAS
No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002. The Company adopted
SFAS No. 146 on January 1, 2003. SFAS No. 146
prospectively changes the timing of when restructuring charges
are recorded from the commitment date to the date that liability
is incurred. The adoption of SFAS No.146 did not have a
material effect on the Company’s financial position or
results of operations.

In November 2002, the FASB issued FASB
Interpretation (“FIN”) No. 45,
“Guarantor’s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.” FIN 45 requires that a liability be recorded in
the guarantor’s balance sheet upon issuance of a guarantee.
In addition, FIN 45 requires disclosures about the guarantees
that an entity has issued, including a reconciliation of changes
in the entity’s product warranty liabilities. The initial
recognition and initial measurement provisions of FIN 45 are
applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the
guarantor’s fiscal year-end. The disclosure requirements of
FIN 45 are effective for financial statements of annual periods
ending after December 15, 2002, but had no impact on the
Company. The adoption of FIN No. 45 did not have a material
effect on the Company’s financial position or results of
operations.

In November 2002, the Emerging Issues Task Force
(“EITF”) reached a consensus on EITF Issue
No. 00-21, “Accounting for Revenue Arrangements with
Multiple Deliverables” (EITF No. 00-21). EITF
No. 00-21 provides guidance on how to account for
arrangements that involve the delivery or performance of
multiple products, services and/or rights to use assets. The
provisions of EITF 00-21 apply to revenue arrangements
entered into in fiscal periods beginning after June 15,2003. The adoption of EITF 00-21 did not have a material effect
on the Company’s financial position or results of
operations.

In January 2003, the FASB issued FIN No. 46,
“Consolidation of Variable Interest Entities,” and in
December 2003 the FASB issued FIN 46-R, a revised interpretation
of FIN 46. FIN 46 requires certain variable interest entities to
be consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics
of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
FIN 46 is effective immediately for all new variable interest
entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46-R must be
applied in the year ending December 31, 2004. The adoption
of

this standard did not have an impact on the
Company’s financial position or results of operations since
the Company has not invested in any variable interest entities.

In May 2003, the FASB issued SFAS No. 150,
“Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.” The
Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of
both liabilities and equity and further requires that an issuer
classify as a liability (or an asset in some circumstances)
financial instruments that fall within its scope because that
financial instrument embodies an obligation of the issuer. Many
of such instruments were previously classified as equity. The
statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period beginning after
June 15, 2003 except for, nonpublic entities, as defined,
it is effective beginning after December 31, 2004. The
adoption of this standard does not have an impact on the
Company’s financial position or results of operations since
it currently does not have any financial instruments that would
require classification as a liability.

In April 2004, the EITF issued Statement
No. 03-06 “Participating Securities and the
Two-Class Method Under FASB Statement No. 128,
Earnings Per Share” (“EIFT 03-06”).
EITF 03-06 addresses a number of questions regarding the
computation of earnings per share by companies that have issued
securities other than common stock that contractually entitle
the holder to participate in dividends and earnings of the
Company when, and if, it declares dividends on its common stock.
The issue also provides further guidance in applying the
two-class method of calculating earnings per share, clarifying
what constitutes a participating security and how to apply the
two-class method of computing earnings per share once it is
determined that a security is participating, including how to
allocate undistributed earnings to such a security.
EITF 03-06 is effective for fiscal periods beginning after
March 31, 2004. The Company is currently evaluating the
effect of adopting EITF 03-06.

Note 3 — Investments

In October 2000 and July 2002, the Company
acquired shares in Gay.it S.p.A., an Italian company that
operates a website targeted towards the Italian gay community,
for total consideration of $572,000. The Company owns 45% of
Gay.it S.p.A., and this investment is accounted for using the
equity method. During 2001, the Company recorded an impairment
charge of $280,000 for an other than temporary decline in the
value of this investment. The recognition of the equity in net
loss from this investment and impairment charges, if any, are
included in equity in net loss on unconsolidated affiliate in
the accompanying consolidated statements of operations for each
year.

Note 4 — Acquisition

On April 17, 2001, the Company acquired
PlanetOut Corporation (“POC”), which operated a gay
and lesbian online community. Each share of common and
redeemable convertible preferred stock of POC was converted into
one share of the Company’s common and redeemable
convertible preferred stock, respectively. The total purchase
consideration is detailed as follows (in thousands):

Additionally, the Company assumed all outstanding
options and warrants of POC and converted them into options and
warrants to purchase an equal number of shares of the
Company’s common or redeemable convertible preferred stock.
As a result, the Company issued 992,505 and 1,227,693 warrants
to purchase Series B-2 redeemable convertible preferred
stock and common stock, respectively, with exercise prices of
$3.602 to $6.08 and $0.075, respectively, and issued 3,037,749
stock options with a weighted average exercise price of $1.01 in
connection with the acquisition. The warrants and options were
valued using the Black-Scholes option pricing model applying
expected lives of four to five years, a weighted average risk
free rate of 4.76%, a dividend yield of 0% and volatility of
75%. No amount was recorded for the warrants and options as the
value was deemed to be insignificant.

The acquisition was accounted for using the
purchase method and, accordingly, the results of operations for
PlanetOut Corporation have been included in the Company’s
statement of operations from the date of acquisition. The
tangible assets and liabilities acquired were recorded at fair
value at the date of acquisition. The amounts allocated to
identifiable intangibles were determined based upon
management’s estimates using established valuation
techniques. Other intangible assets are being amortized on a
straight-line basis over one to three years.

The following unaudited pro forma financial
information combines the consolidated results of operations as
if the acquisition of PlanetOut Corporation had occurred as of
the beginning of the period presented. The following pro forma
includes only the effects of events directly attributed to the
transaction that are factually supportable and expected to have
a continuing impact (in thousands):

Net income (loss) per share attributable to
common stockholders — basic and diluted

$

(0.81

)

The pro forma financial information is not
necessarily indicative of the operating results that would have
occurred had the acquisition been consummated as of the
beginning of periods presented, nor are they necessarily
indicative of future operating results.

Note 5 — Changes in Accounting
for Business Combinations, Goodwill and Other Intangible
Assets:

The Company adopted SFAS No. 142 on
January 1, 2002, ceased amortizing goodwill balance
totaling $3,403,000, which includes $678,000 of assembled
workforce that was previously classified as intangible assets,
and performed its initial impairment test on this date as
required by the standard. The results of Step 1 of the
goodwill impairment analysis showed that goodwill was not
impaired as the market

value of its one reporting unit exceeded its
carrying value, including goodwill. Accordingly, Step 2 was
not performed.

The Company, which operates in one operating
unit, performed its annual test on December 1, 2002 and
2003. The results of Step 1 of the goodwill impairment
analysis showed that goodwill was not impaired as the estimated
market value of its one reporting unit exceeded its carrying
value, including goodwill. Accordingly, Step 2 was not
performed. The Company will continue to test for impairment on
an annual basis and on an interim basis if an event occurs or
circumstances change that would more likely than not reduce the
fair value of the Company’s reporting unit below its
carrying amounts.

The following table presents information showing
the effects that non-amortization of goodwill and workforce
would have had on the statement of operations in 2001 (in
thousands):

Intangible assets subject to amortization consist
of registered user base, trade names and other intangible assets
with amortization periods of one to three years. The components
of intangible assets, excluding goodwill, are as follows (in
thousands):

In 2001, 2002 and 2003, the Company provided for
an increase in the allowance of doubtful accounts of $98,000,
$73,000 and $25,000, respectively, and wrote-off of accounts
receivable against the allowance for doubtful accounts totaling
$401,000, $43,000 and $64,000, respectively.

In May 2001, the Company issued a promissory note
to an executive of the Company for $603,000 to fund the purchase
of Series D redeemable convertible preferred stock. The
principal and interest are due and payable in May 2006. Interest
accrues at a rate of 8.5% per annum or the maximum rate
permissible by law, whichever is less and is full recourse. The
note is full recourse with respect to $24,000 in principal
payment and the remainder of the principal is non-recourse. The
note is collateralized by the shares of preferred stock, common
stock, warrants and options owned by the executive. Interest
income of $26,000, $52,000 and $52,000 was recognized in 2001,
2002 and 2003.

Consulting service agreement

In March 1998, the Company entered into a
financial advisory service agreement with Jesse.
Hansen & Co. (the “Business Advisor”), whose
President at the time is also a member of the Board of Directors
of the Company. Under the service agreement, the Business
Advisor acted as advisor of the Company in several business and
financial matters, as defined by the agreement. The agreement
was terminated in May 2003. In consideration for the services
rendered, the Company made aggregate cash payments of $78,000,
$93,000 and $38,000 in 2001, 2002 and 2003, respectively.
Additionally, in connection with this service agreement the
Company issued to the Business Advisor options to
purchase 73,097 shares of common stock at an exercise
price of $0.21 per share. The fair value of the options on
the date of grant was not significant.

Anchor Tenant Agreement

In connection with the acquisition of POC, the
Company assumed an agreement with America Online
(“AOL”) which owns more than 5% of the Company’s
common stock. Pursuant to this agreement, the Company paid a fee
of $625,000, $95,000 and $12,000 in 2001, 2002 and 2003,
respectively, for promotion services which is recorded in sales
and marketing.

Note 8 —

Commitments and Contingencies

Operating leases

The Company leases office space and equipment
under noncancelable operating leases with various expiration
dates through January 2005. The Company recognizes rent expense
on a straight-line basis over the lease period. Rent expense
under the Company’s operating leases in 2001, 2002 and
2003, was $1,950,000, $1,136,000 and $452,000, respectively, net
of sublease income of zero, $41,000 and zero, respectively.

As of December 31, 2003, the future minimum
lease payments under noncancelable capital leases are as follows
(in thousands):

Capital

Year Ending December 31,

Leases

2004

$

1,028

2005

529

2006

72

2007

40

2008

5

Total minimum lease payments

1,674

Less: Amount representing interest

(261

)

Present value of capital lease obligations

1,413

Less: Current portion

(868

)

Long-term portion of capital lease obligations

$

545

As of December 31, 2002 and 2003, the
Company held property and equipment under capital leases with a
cost of $1,790,000 and $2,656,000, respectively. The accumulated
amortization on these assets was $1,130,000 and $1,403,000 as of
December 31, 2002 and 2003, respectively.

Co-location Facility
Agreement

In January 2002, the Company entered into a
co-location facility agreement with a third-party service
provider. In exchange for providing a secure location for the
Company’s network servers, the Company pays a minimum
monthly fee of $31,000. Future minimum payments under the
co-location facility agreement are $373,000 in 2004 and 2005.

Performance and Equity Participation
Plan

In December 2001, the Board of Directors approved
the Performance and Equity Participation Plan, or PEP Plan. The
PEP Plan is designed to enable the participation of the
Company’s employees in the sale of the Company, should one
occur, after any liquidation or similar payments are made with
respect to Series D preferred stock and any other
securities on par or senior to the Series D shares. The PEP
Plan allows employees of the Company who have been identified as
participants and who are employed by the Company at the time of
an acquisition or sale of the Company to share in a bonus or PEP
Pool, the size of which will be determined as a percentage of
the value of the Company up to $125,000,000 at the time of the
acquisition or sale, ranging from 6.3% to 8.6% of such value.
The PEP Plan will automatically terminate upon completion of an
initial public offering.

Indemnification

In June 2001, the Company entered into an
Indemnity Agreement with its President pursuant to which the
Company agreed to indemnify him for certain costs of defense and
damages that might be awarded against him in a lawsuit brought
against him and the Company, among others, by a former employee.

The Company is not currently subject to any
material legal proceedings. The Company may from time to time,
however, become a party to various legal proceedings, arising in
the ordinary course of business. The Company may also be
indirectly affected by administrative or court proceedings or
actions in which the Company is not involved but which have
general applicability to the Internet industry. The Company is
currently involved in the following matters. The Company does
not believe, based on current knowledge, that any of the
following legal proceedings or claims are likely to have a
material adverse effect on its financial position, results of
operations or cash flows.

In November 2000, a former employee filed a law
suit against the Company for breach of contract, fraud and
numerous other business torts. In July 2001, upon the
Company’s motion, the San Francisco Superior Court
ordered the parties to mediate the case and, if the mediation
proved unsuccessful, to arbitrate the case. The matter was
mediated in March 2004, but the parties were unable to reach an
agreement. No amount has been recorded for this contingency. The
Company believes that it has meritorious defenses to these
claims, and intends to defend itself vigorously in this matter.

In April 2002, DIALINK, a French company, filed a
law suit in the French courts against the Company and its French
subsidiary, alleging that the Company has improperly used the
domain names of gay.net, gay.com and fr.gay.com in France, as
DIALINK alleges to have exclusive rights to use the word
“gay” as a domain name and trademark in France. No
amount has been recorded for this contingency. The Company
believes that it has meritorious defenses to these claims, and
intends to defend itself vigorously in this matter.

Note 9 —

Lease Settlement

In September 2002, the Company terminated its
office lease and vacated the space due to the landlord’s
failure to deliver further space as required by the lease
agreement. The landlord subsequently requested an arbitration
hearing to recover the payments remaining on the lease. In
February 2003, a settlement was reached under which the Company
agreed to pay $2,750,000 of which $1,188,000 was paid in 2003
and the remaining amount will be paid in 2004. The settlement
amount was accrued for in full in general and administrative
expenses in 2002 and the remaining liability as of
December 31, 2003 is in accrued liabilities.

Note 10 —

Redeemable Convertible Preferred
Stock

The following table summarizes redeemable
convertible preferred stock as of December 31, 2003 (in
thousands):

In May 2001, the Company engaged in a
recapitalization pursuant to which each holder of
Series A-1, A-2, B-1, B-2 and B-3 redeemable convertible
preferred stock and warrants to acquire preferred stock was
given the option to invest in Series D redeemable
convertible preferred stock. Preferred stock and warrant holders
that invested in Series D redeemable convertible preferred
stock would exchange their redeemable convertible preferred
stock Series A-1, A-2, B-1, B-2 and B-3 to Series C-1,
C-2, C-3, C-4 and C-5 redeemable convertible preferred stock and
warrants on a 2.941494:1 basis, respectively. Preferred stock
and warrant holders that did not invest in Series D had
their redeemable convertible preferred stock and warrants
converted to common stock and warrants on a 1:1 basis, the
original conversion terms. In connection with the
recapitalization, $2,471,000 of bridge notes payable and related
interest were converted to Series D and the Company
received $8,839,000 in cash (net of issuance costs of $549,000)
and a $603,000 note receivable. Amounts converted or exchanged
in the recapitalization are as follows (in thousands):

Number of

Shares of

Number of

Preferred

Preferred

Common

Number of

Stock Series

Stock

Shares

Original Preferred Stock Series

Shares

Exchanged for

Received

Received

A-1

4,141

C-1

8,018

1,415

A-2

5,933

C-2

8,813

2,937

B-1

907

C-3

2,432

80

B-2

7,658

C-4

14,355

2,778

B-3

7,055

C-5

19,112

557

25,694

52,730

7,767

Number of

Number of

Preferred

Common

Preferred

Stock

Stock

Original Warrants

Number of

Stock Series

Warrants

Warrants

for Preferred Stock Series

Warrants

Exchanged for

Received

Received

A-1

1,780

C-1

—

1,780

A-2

478

C-2

187

415

B-2

993

C-4

753

736

B-3

304

C-5

175

245

3,555

1,115

3,176

In connection with the recapitalization:
(1) Series A-2 and B-3 preferred stock and preferred
stock warrants were exchanged for Series C-2 and C-5
preferred stock and preferred stock warrants, respectively, and
the Company recorded a credit to accumulated deficit of
$13,500,000 which represents the excess of the carrying value of
the preferred stock and warrants exchanged over the fair value
of the preferred stock and warrants received;
(2) Series A-1, B-1 and B-2 preferred stock and
Series B-2 preferred stock warrants were exchanged for
Series C-1, C-3 and C-4 preferred stock and warrants,
respectively, and the Company recorded a charge to additional
paid-in capital of $4,320,000 which represents the excess of the
fair value of the preferred stock and warrants received over the
carrying value of the preferred stock and warrants exchanged;
and (3) Series A-1, A-2, B-2 and B-3 preferred stock
warrants were exchanged for common stock warrants and the
Company recorded a credit to accumulated deficit of $1,212,000
which represents the excess of the carrying value of the
warrants exchanged over the fair value of the common stock
warrants received.

In accordance with EITF Topic D-42, the net gain
of $10,392,000 on the exchange of the preferred stock and the
preferred stock warrants in the connection with the
recapitalization is offset against

net loss in determining the net loss attributable
to common stockholders for purposes of computing earnings per
share.

The rights, privileges and restrictions of
holders of Series C-1, C-2, C-3, C-4, C-5, D and E
redeemable convertible preferred stock
(“Series C-1”, “Series C-2”,
“Series C-3”, “Series C-4”,
“Series C-5”, “Series D” and
“Series E,” respectively) are set forth in the
Company’s Amended and Restated Certificate of Incorporation
(the “Certificate of Incorporation”), as amended, and
are summarized as follows:

Dividends

The holders of Series D and Series E
are entitled to receive cumulative dividends in preference to
any dividend on any other preferred Series or common stock, at
the amount of $0.037 per share per annum (compounded
quarterly). In addition, each share of Series D and
Series E shall share on a pro rata basis with any dividends
payable to holders of common stock on an as-converted basis. The
cumulative unpaid dividends are $4,071,000 as of
December 31, 2003. Cumulative dividends terminate in the
event of an initial public offering.

The holders of Series C-1, C-2, C-3, C-4,
and C-5 are entitled to receive noncumulative dividends in
preference to any dividend on common stock, when and if declared
by the Board of Directors. After payment of any dividends
pursuant to Series D, Series E or Series C, any
additional dividends shall be distributed among all the holders
of common stock. The Series B shall not be entitled to
receive any dividends.

Liquidation

In the event of any liquidation, dissolution, or
winding up of the Company either voluntary or involuntary or a
merger or consolidation with any other corporation, or a sale or
other transfer of substantially all the assets of the Company,
the holders of Series E shall be entitled to receive, in
preference to the holders of Series D, C-1, C-2, C-3, C-4,
C-5, B and common stock, an amount equal to $0.74 per each
outstanding share plus an amount equal to all accrued but unpaid
dividends. Upon completion of the required distribution for
Series E, the holders of Series D shall be entitled to
receive, in preference to the holders of Series C-1, C-2,
C-3, C-4, C-5, B and common stock, an amount equal to
$0.74 per each outstanding share plus an amount equal to
all accrued but unpaid dividends. Upon completion of the
required distribution for Series D, the holders of
Series C-1, C-2, C-3, C-4, and C-5 shall be entitled to
receive, in preference to the holders of Series B and
common stock, an amount equal to $0.199, $0.47, $0.255, $1.22,
and $1.04, respectively, per each outstanding share. Upon
completion of the required distribution for Series E, D,
C-1, C-2, C-3, C-4 and C-5, the holders of Series B shall
be entitled to receive, in preference to the holder of common
stock an amount per share equal to i) total amount of the
Value Pool, as defined by the Company’s Certificate of
Incorporation, divided by ii) the total number of outstanding
shares of Series B. Following the above payments, the
remaining assets and funds of the Company legally available for
distribution, if any, shall be distributed ratably among the
holders of Series E, D, C-1, C-2, C-3, C-4 and C-5, and the
holders of common stock in proportion to the number of shares of
common stock held on an as-if converted basis.

Redemption

At the individual option of each holder of shares
of Series E and D, the Company shall redeem, at any time on
or after May 1, 2006, the number of shares of Series E
or D held by such holder by paying in cash a sum equal to
$0.37 per share plus all accrued but unpaid dividends on
such shares on the date of redemption (the “Redemption
Price”). The Redemption Price shall be payable in two equal
installments on the redemption date and on the first anniversary
of the redemption date. In 2001, 2002 and 2003, the

Company recorded $940,000, $1,524,000 and
$1,607,000, respectively, of accretion for cumulative dividends.

In addition to the accretion for cumulative
dividends described above, the Company recorded accretion of
$185,000 and $122,000 in 2002 and 2003, respectively, in
connection with issuance costs capitalized and recorded against
the gross proceeds received from the issuance of Series D
and E using the effective interest method.

If the Company does not have sufficient funds
legally available to redeem all shares of Series E and D at
the redemption date, the funds legally available will be used to
redeem the maximum possible number of shares ratably among the
holders of such shares, treating shares of Series E and D
on a pari passu basis.

Conversion

Each share of Series E, D, C-1, C-2, C-3,
C-4 and C-5 are convertible at the option of the holder at any
time after the issuance date of such share into a number of
shares of common stock determined by dividing the sum of the
original issue price and all accrued or declared but unpaid
dividends by the conversion price, subject to adjustments as
defined by the Company’s Certificate of Incorporation,
applicable to such shares on the conversion date.

Each share of Series E, D, C-1, C-2, C-3,
C-4 and C-5 shall automatically be converted into shares of
common stock at the then conversion price immediately prior to
the earlier of (i) closing of an underwritten public
offering under the Securities Act of 1933, with a total public
offering price of not less than $15,000,000 and a per share
common stock price of at least $0.74, as adjusted for stock
splits, stock dividends, recapitalizations and the like, (a
“Qualifying Public Offering”), and ii) the date
specified by written consent or agreement of the Requisite
Preferred Holder, as defined by the Company’s Certificate
of Incorporation.

Upon the closing of a Qualified Public Offering,
the Series B will be converted into shares of common stock
at the conversion rate of 1:1 to 1:2.5 depending on the value of
the Qualified Public Offering, as defined in the Company’s
Certificate of Incorporation.

Voting

The holders of each share of Series E, D,
C-1, C-2, C-3, C-4, and C-5 are entitled to vote on all matters
and entitled to the number of votes equal to the number of
shares of common stock into which the preferred stock could be
converted pursuant to the conversion rights, and shall be
entitled to vote together with holders of common stock with
respect to any matter upon which holders of common stock have
the right to vote.

As long as 61,250,000 shares of
Series E, D , C-1, C-2, C-3, C-4, and C-5 are outstanding,
in the aggregate, the Company must obtain approval from a
majority of the holders of such shares in order to adversely
alter the rights, preferences or privileges of the
Series E, D , C-1, C-2, C-3, C-4, and C-5; increase the
authorized number of shares of Series E, D , C-1, C-2, C-3,
C-4, and C-5; authorize or issue or obligate itself to issue any
other security; effect any recapitalizations; pay dividends or
make other distributions on the capital stock of the Company;
redeem, purchase or otherwise acquire any shares of preferred
stock or common stock; provided, however, that this restriction
shall not apply to (i) shares of common stock subject to
repurchase by the Company at cost upon the occurrence of certain
events such as termination of employment, and (ii) the
redemption of any shares of Series E, D, C-1, C-2, C-3,
C-4, and C-5, in accordance with the Company’s Certificate
of Incorporation.

In connection with certain acquisitions,
financing arrangements and in exchange for services rendered,
the Company issued warrants to purchase shares of the
Company’s redeemable convertible preferred and common
stock. The following warrants were outstanding as of
December 31, 2003 (in thousands, except per share amounts):

Number

Outstanding

and

Year of

Exercisable

Exercise Price

Expiration

Series D warrants

1,294

$0.37

2006

Series C-4 warrants

754

$1.22

2005

Series C-5 warrants

175

$1.04

2005

Common stock warrants

2,400

$0.08 to $6.083

2004 to 2006

In August 2000, the Company issued a warrant to
the landlord of the Company’s office building to purchase
common stock and an additional warrant to purchase common stock
which becomes exercisable as certain additional space becomes
available for lease. The warrants have a term of 7 years.
The fair value of the exercisable warrants was calculated using
the Black-Scholes option pricing model applying an expected life
of 7 years, a risk-free interest rate of 6.06% to 5.00%, a
dividend yield of 0%, and volatility of 75%. The fair value of
the exercisable warrants to purchase 280,206 shares of
common stock was $30,000 and was amortized over the term of the
lease agreement, with amortization of $4,000 and $24,000 being
recognized in 2001 and 2002, respectively. During 2002, 6,091
warrants were exercised. As part of the lease settlement
agreement in 2003 (see Note 9) the remaining warrants
were cancelled.

In connection with the issuance of convertible
notes in 2001, the Company issued warrants to
purchase 1,631,754 shares of Series D at
$0.37 per share. The warrants expire on the earlier of May
2006 or six months after the effective date of the
Company’s initial public offering. The Company valued the
warrants using the Black-Scholes option pricing model applying
an expected life of five years, weighted average risk-free
interest rate of 4.65%, a dividend yield of 0% and volatility of
75%. The proceeds were apportioned between the note and the
warrants, and the amount allocated to the warrants of $334,000
was amortized to interest expense in 2001, as the notes were
converted into preferred stock. During 2001, 337,836 warrants
were exercised.

Note 12 — Stock Option
Plans

On December 4, 1997, the Company adopted the
1997 Stock Option Plan and on April 17, 2001, the Company
assumed the PlanetOut Corporation 1996 Stock Option Plan and
PlanetOut Corporation 1996 Equity Incentive Plan (as part of the
acquisition of PlanetOut Corporation). On January 22, 2002,
the Company adopted the PlanetOut Partners, Inc. 2001 Equity
Incentive Plan (hereinafter collectively referred as the
“Plans”). The Plans provide for the granting of stock
options and rights to acquire restricted stock to employees,
outside directors and consultants of the Company. Options
granted under the Plans may be either incentive stock options or
nonqualified stock options. Incentive stock options
(“ISO”) may be granted only to Company employees and
nonqualified stock options (“NSO”) may be granted to
Company employees and consultants. As of December 31, 2003,
the Company has reserved an aggregate of 24,680,109 and
2,800,000 shares of common stock and Series D,
respectively, for issuance under the Plans.

Options under the Plans may be granted for
periods of up to ten years and at prices no less than 85% of the
estimated fair value of the shares on the date of grant as
determined by the Board of Directors, provided, however, that
(i) the exercise price of an ISO shall not be less than
100% of the value of the shares on the date of grant; and
(ii) the exercise price of an ISO and NSO granted to a 10%
stockholder

shall not be less than 110% of the estimated fair
value of the shares on the date of grant. Options granted under
the Plans are generally exercisable at the date of grant with
unvested shares subject to repurchase by the Company. To date,
options granted under the Plans generally vest over four years
for common stock options and over two years for Series D
options.

The following is a summary of common stock option
activity (in thousands, except per share amounts):

Common stock option holders have the right to
exercise unvested options granted prior to July 11, 2000,
subject to a repurchase right held by the Company, which
generally lapses ratably over four years, at the original
exercise price in the event of voluntary or involuntary
termination of employment of the stockholder.

The Company issued options and restricted stock
to employees and recorded unearned stock-based compensation
related to these awards in 1999 and 2000 which is being
amortized over the vesting period. The Company recorded
stock-based compensation of $145,000 and $113,000 in 2001 and
2002, respectively.

In August 2003, the Company permitted those
employees who began their employment with the Company prior to
2001 to exercise their Series D and common stock options up
to a number equal to the options vested as of December 31,2002 at an exercise price of $0.001 per share. A total of
1,019,217 and 1,668,517 Series D and common stock options
were exercised, respectively. As a result of this modification,
the Company recorded stock-based compensation for the intrinsic
value of the options at the date of exercise in 2003 in the
amount of $522,000.

Option cancellation and regrant
program

In January 2002, the Company implemented an
Option Cancellation and Regrant Program (the
“Program”). The Program offered current Company
employees the opportunity to cancel certain common stock options
with an exercise price in excess of $0.10 per share, in
exchange for the Company’s promise to grant replacement
common stock options in August 2002 at an exercise price equal
to the fair value of the common stock on the grant date. The
number of new common stock options would be at least equal to
the common stock options cancelled. The Program resulted in the
cancellation of 4,594,432 common stock options at a
weighted-average exercise price of $0.97 per share and the
grant, on August 23, 2002, of 16,768,781 common stock
options at exercise price of $0.04 per share.

Additionally, in January 2002, the Company issued
to the participants of the Program, an aggregate of 2,632,357
Series D options at an exercise price of $0.37 per
share. Of the total Series D options, a total of 1,708,784
Series D options (the “Replacement Awards”) are
subject to variable plan accounting, as they were granted within
6 months and one day from the cancellation date of the
original award, as defined by FASB Interpretation No. 44,
“Accounting for Certain Transactions Involving Stock
Compensation an Interpretation of APB No. 25”
(“FIN No. 44”). Under FIN No. 44, the
Company will remeasure the intrinsic value of the Replacement
Awards until such options are exercised, forfeited or expire.
Subsequently, in August 2003 a total of 1,019,217 Series D
options were exercised. In 2002 and 2003, the Company recorded
stock-based compensation related to the Replacement Awards of
$480,000 and $35,000, respectively.

Restricted stock grant

In August 2003, the Company issued 5,531,178
restricted shares of Series B at an exercise price of
$0.001 per share to all employees as of July 31, 2003,
which vest over a term of two years beginning on the later of
February 1, 2003 or the date of hire. As a result, the
Company recorded unearned stock-based compensation for the
estimated fair value of Series B at date of exercise of
$1,267,000, which is being amortized over the vesting period.
The Company recorded stock based compensation of $1,008,000
associated with the issuance of these awards in 2003. Related
unearned stock-based compensation as of December 31, 2003,
totaled $259,000 of which $255,000 and $4,000 are expected to be
amortized in 2004 and 2005, respectively. As of
December 31, 2003, there were 3,040,130 shares subject
to repurchase by the Company at the original issuance price.

$1,649,000 as deferred cost and amortized this
over the service period. The Company recorded stock-based
compensation of $610,000 and $92,000 in cost of revenue in 2001
and 2002 related to these awards.

During 2002 and 2003, the Company granted 287,640
and 109,000 Series D options and common stock options,
respectively, at an exercise price of $0.37 and $0.07 per
share, respectively, to consultants in consideration for their
services rendered to the Company. Of these grants, 30,143
Series D options were fully vested at the date of grant and
the remaining of these grants are subject to a vesting period of
two years from the date of grant. On each reporting period, the
Company recognizes stock-based compensation expense associated
with these options as they vest and estimates their fair value
based on the Black-Scholes option pricing model and its
applicable assumptions at each reporting period. Accordingly, in
2002 and 2003, the Company recorded stock-based compensation
expense totaling $32,000 and $32,000, respectively. The
following assumptions were utilized: expected dividend yield of
10%; risk-free interest rate ranging from 4.13% to 5.18%;
expected volatility ranging from 75% to 76%; and a remaining
contractual life ranging from 8 to 10 years.

Note 13 — Deferred Contribution
Plan

The Company maintains a defined contribution plan
in the United States, which qualifies as a tax deferred savings
plan under Section 401(k) of the Internal Revenue Code
(“IRC”). Eligible U.S. employees may contribute a
percentage of their pre-tax compensation, subject to certain IRC
limitations. The Plan provides for employer matching
contributions to be made at the discretion of the Board of
Directors. Employer matching contributions were $57,000, $61,000
and $75,000 for 2001, 2002 and 2003, respectively.

Note 14 —

Income Taxes

The provision for income taxes is $9,000, $9,000
and $149,000 in 2001, 2002 and 2003, respectively. The
Company’s effective tax rate differs from the statutory
rates, primarily due to no tax benefit for operating losses.

The components of temporary differences which
give rise to deferred taxes are (in thousands):

Due to the uncertainty surrounding the
realization of the favorable tax attributes in future tax
returns, the Company has placed a full valuation allowance
against its net deferred tax assets. The valuation allowance
increased by $6,039,000 and $3,915,000 in 2001 and 2002,
respectively, and decreased by $281,000 in 2003 and will be
available in future years to offset income.

As of December 31, 2003, the Company had net
operating loss carryforwards of $37,781,000 and $26,913,000 for
federal and state net operating loss carryforwards, available to
offset future taxable income which expires in varying amounts
beginning in 2012 and 2005, respectively.

Under the Tax Reform Act of 1986, the amounts of
and benefits from net operating loss carryforwards and credits
may be impaired or limited in certain circumstances. Events
which cause limitations in the amount of net operating losses
that the Company may utilize in any one year include, but are
not limited to, a cumulative ownership change of more than 50%,
as defined, over a three year period. The amount of such
limitation, if any, has not been determined.

Note 15 — Subsequent
Events

Initial public offering

In April 2004, the Company’s Board of
Directors authorized management to file a registration statement
with the Securities and Exchange Commission to permit the
Company to sell shares of its common stock to the public.

2001 Equity incentive plan

In April 2004, the Company increased the number
of shares reserved under its 2001 Equity Incentive Plan by
596,979 shares. The Company granted options to purchase a total
of 4,392,285 shares of common stock to its employees at an
exercise price of $0.82 per share.

2004 Equity incentive plan

In April 2004, the Company’s Board of
Directors adopted, subject to stockholders’ approval, the
2004 Equity Incentive Plan (the “2004 Plan”). The 2004
Plan authorizes the award of incentive and nonqualified stock
options, stock purchase rights, stock bonus awards, restricted
stock awards, restricted stock units, stock appreciation rights,
phantom stock rights and other similar equity-based awards to
employees, directors and consultants. The Board of Directors, or
committee designated by the Board of Directors, will administer
the 2004 Plan.

In the event of a change of control, defined as a
sale of substantially all of the Company assets, certain mergers
or consolidations with or into another company and acquisition
of a majority of the outstanding shares of stock, the
outstanding awards will terminate upon the close of the change
of control unless the successor corporation agrees to assume.
The Board of Directors has the discretion to accelerate vesting
with respect to options not being assumed.

The Company has reserved 6,000,000 shares
for issuance under the 2004 Plan. The number of shares reserved
for issuance under the 2004 Plan (automatically) increases on
January 1 of each year starting in 2005 through 2014 by the
least of (a) 6,000,000 shares, (b) 4% of the
outstanding shares of common stock as of the first day of
applicable year or (c) such lesser amount as determined by
the Board of Directors.

The 2004 Plan will automatically terminate on the
tenth anniversary unless the Board of Directors terminates prior
to that date.

2004 Executive Officers and Directors
equity incentive plan

In April 2004, the Company’s Board of
Directors adopted, subject to stockholders’ approval, the
2004 Executive Officers and Directors Equity Incentive Plan (the
“2004 Executive Officer and Director Plan”). The 2004
Executive Officer and Director Plan authorizes the grant of
incentive stock options to the Company’s executive officers
and directors. The Company has reserved 3,947,654 shares
for issuance under the 2004 Executive Officer and Director Plan
and granted options under the plan for an aggregate of
3,947,654 shares of the Company’s common stock at an
exercise price of $0.82 per share.

In April 2004, the Company’s Board of
Directors approved a reverse stock split in a range of one for
ten to one for fifteen shares, which will be fixed by the
Board of Directors prior to submission for approval by
shareholder. Following shareholder approval and upon the closing
of the Company’s initial public offering, all share, per
share and stock option date information in the financial
statements for all periods will be retroactively restated to
reflect the reverse stock split.

Front inside cover artwork description: A map of
the world displaying countries and localized websites where we
offer our products and services to our global online LGBT
community. Our specific services categories are highlighted in
each of the four corners of the map.

The following table sets forth the costs and
expenses, other than the underwriting discount, payable by the
registrant in connection with the sale of the securities being
registered. All amounts are estimates except the SEC
registration fee.

SEC Registration Fee

$

9,503

NASD Filing Fee

8,000

Nasdaq National Market Listing Fee

Printing Costs

Legal Fees and Expenses

Accounting Fees and Expenses

Blue Sky Fees and Expenses

Transfer Agent and Registrar Fees

5,000

Miscellaneous

Total

Item 14.

Indemnification of Directors and
Officers.

As permitted by Section 145 of the Delaware
General Corporation Law, the registrant’s restated
certificate of incorporation includes a provision that
eliminates the personal liability of its directors for monetary
damages for breach or alleged breach of their fiduciary duty as
a director. In addition, as permitted by Section 145 of the
Delaware General Corporation Law, the restated certificate of
incorporation and bylaws of the registrant provide that:

•

the registrant is required to indemnify its
directors and officers and such persons serving as a director,
officer, employee or agent in other business enterprises at the
registrant’s request, to the fullest extent permitted by
Delaware law, including in those circumstances in which
indemnification would otherwise be discretionary;

•

the registrant may, in its discretion, indemnify
employees and agents in those circumstances where
indemnification is not required by law;

•

the registrant is required to advance expenses,
as incurred, to its directors and officers in connection with
defending a proceeding, upon receipt of an undertaking by or on
behalf of such director or officer to repay such amounts if it
is finally determined that such person is not entitled to
indemnification under Delaware law;

The registrant’s policy is to enter into
indemnification agreements with each of its directors and
executive officers that provide the maximum indemnity allowed to
directors and executive officers by Section 145 of the
Delaware General Corporation Law, the registrant’s restated
certificate of incorporation and the bylaws, as well as certain
additional procedural protections. The indemnification
agreements provide that the registrant’s directors and
executive officers will be

indemnified to the fullest possible extent not
prohibited by law against all expenses, including
attorney’s fees, and amounts paid in settlement or incurred
by them in any action or proceeding, including any derivative
action by or in the right of the registrant, on account of their
services as directors or executive officers of the registrant or
as directors, officers, employees, agents or fiduciaries of any
other company or enterprise when they are serving in these
capacities at the request of the registrant. The registrant will
not be obligated pursuant to the indemnification agreements to
indemnify or advance expenses to an indemnified party with
respect to proceedings or claims initiated by the indemnified
party and not by way of defense, counterclaim or cross claim,
except with respect to proceedings specifically authorized by
the registrant’s board of directors, brought to enforce a
right to indemnification under the indemnification agreement,
the registrant’s restated certificate of incorporation or
bylaws or as required by Delaware law. In addition, under the
agreements, the registrant is not obligated to indemnify, or
advance expenses to, the indemnified party:

•

for any expenses incurred by the director or
executive officer with respect to any proceeding instituted by
such party to enforce or interpret the indemnification
agreement, if a court of competent jurisdiction determines that
each of the material assertions made by such party was not made
in good faith or was frivolous;

•

for any damages or expenses incurred by the
director or officer in an action brought by or in the name of
the registrant to enforce or interpret the indemnification
agreement if a court of competent jurisdiction determines in a
final judgment that each of the material defenses asserted by
such director or officer was made in bad faith or was frivolous;

•

for expenses or liabilities of any type to the
extent the director or officer has otherwise received payment
for such amount, whether under an insurance or otherwise;

•

for any amounts paid in settlement of a
proceeding unless the registrant consents to such settlement;

•

For expenses and the payment of profits arising
from the purchase or sale by the indemnified party of securities
of the registrant in violation of the provisions of
Section 16(b) of the Securities Exchange Act of 1934, if a
court of competent jurisdiction makes a final determination that
the director or officer has violated such laws; and

•

For any acts, omission, or transaction for which
a director or officer may not be indemnified under Delaware law,
as determined in a final judgment by a court of competent
jurisdiction.

The indemnification provisions in the
registrant’s restated certificate of incorporation, bylaws
and the indemnification agreements entered into between the
registrant and its directors and executive officers may be
sufficiently broad to permit indemnification of the
registrant’s officers and directors for liabilities arising
under the Securities Act of 1933.

Reference is made to the following documents
filed as exhibits to this registration statement regarding
relevant indemnification provisions described above and
elsewhere herein:

During the last three years we have issued
unregistered securities as described below. The share and per
share amounts below assume an 11-for-1 reverse stock split to be
effected prior to completion of this offering.

In February 2001, we issued convertible
promissory notes in the aggregate principal amount
$2.4 million and warrants exercisable for an aggregate of
148,341 shares of our series D preferred stock, at an
exercise price of $4.07 per share to 10 accredited investors.
The principal amount of these notes, together with approximately
$56,000 of accrued interest, was converted into a total of
607,125 shares of series D preferred stock at the
initial closing of our series D financing described below.
This issuance was exempt from registration under the Securities
Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.

From April 2001 through August 2001, we issued
and sold an aggregate of 3,061,816 shares of our
series D preferred stock at a per share price of $4.07 for
aggregate cash consideration of $12,461,602 to 67 accredited
investors. In connection with these sales, we issued to the
purchasers of our series D preferred stock a total of
4,793,608 shares of our series C-1, C-2, C-3, C-4 and
C-5 preferred stock upon conversion of shares our capital stock
held by these purchasers. These issuances were exempt from
registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transaction did
not involve a public offering.

From February through September 2002, we issued
and sold an aggregate of 811,743 shares of our
series E preferred stock to 26 accredited investors at
a per share price of $4.07 per share for aggregate cash
consideration of $3,303,831. This issuance was exempt from
registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transaction did
not involve a public offering.

In August 2003, we issued 509,090 shares of
our series B preferred stock to a number of our employees,
directors and consultants at a per share price of $0.011 for
aggregate cash consideration of $5,600. This issuance was exempt
from registration under the Securities Act pursuant to
Rule 701 promulgated under Section 3(b) thereof on the
basis that the transaction was pursuant to a compensatory
benefit plan.

From April 2001 through April 26, 2004, we
granted options to purchase an aggregate of 92,650 shares
of series D preferred stock all at an exercise price of
$4.07 per share to a number of our employees, directors and
consultants. These transactions were exempt from registration
under the Securities Act pursuant to Rule 701 promulgated
under Section 3(b) thereof on the basis that the
transactions were pursuant to a compensation benefit plan.

From April 2001 through April 26, 2004, we
granted options to purchase an aggregate of
2,160,213 shares of our common stock with a weighted
average exercise price of $2.45 per share to a number of our
employees, directors and consultants. These transactions were
exempt from registration under the Securities Act pursuant to
Rule 701 promulgated under Section 3(b) thereof on the
basis that the transactions were pursuant to a compensation
benefit plan.

Item 16.

Exhibits and Financial Statement
Schedules

The exhibits listed in the exhibit Index are
filed as part of this registration statement.

All schedules have been omitted because they are
not applicable or because the required information is included
elsewhere in the financial statements.

Item 17. Undertakings

We hereby undertake to provide to the
underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.